Speaker 1How does the world really work? Investors should be thinking about that. How did it work for the last 40 years? How is it likely to work for the next 10? And what are the big issues that you should be focused on that people tend not to focus on? And if they do, they get them wrong. We're going to cover all that and more today with our guest, Brent Johnson from Santiago Capital. I've been following Brent for about four or five years now. I think he's brilliant. He knows he's forgotten more about this stuff than I'll ever know. And I'm really happy to get him on the show every now and then to pass along his latest thoughts. That's what he's doing for us today. So let's do it. Let's talk with Brent Johnson. Let's do it right now. Brent Johnson, welcome back to the show. It's been a lot of fun. Yeah, thanks for having me.
Speaker 2This should be fun.
Speaker 1Oh, always, always. I want our listeners to know that I very much enjoy following your work on Twitter, Santiago Capital on Twitter, and Substack as well. So Brent did not ask me to do this. I don't make a penny from this, but I really recommend that you read his stuff.
Speaker 2That's all I'm going to say.
Speaker 1You bet. And you are sort of, I'm developing quite a little macro geopolitical posse here, and you're definitely one of those folks. And I continue, every time I talk to one of you, I have to reiterate that, you know, if you never cared about macro or geopolitics or anything before, you know, you might want to get on the stick about that, because I feel like things are very, very much, and that could interrupt this sort of regime that we've enjoyed for decades now. I'm going to peg it since like 1980, just round number there. And if you want to change the date, feel free. But, you know, just throw money in your 401k and you don't know anything and you're really great. Everything's fine. I feel like there's a chance that we are watching that change in real time. And 10 years from now, you'll look backward and you'll say, you'll say, man, I wish I'd started reading this guy, Brent Johnson in 2026 or so.
Speaker 2Yeah, I mean, that's what we talk about. And what we tend to write about is capital markets, geopolitics, the intersection of capital markets, geopolitics, and the madness of crowds, because I think madness is probably as good an adjective as any to describe the age that we are either in or going into. And I think that's what we're trying to do very quickly. And it's really interesting on the one hand. It's kind of I kind of feel like this is what I've prepared my whole life for. And so it's exciting. But it's also scary. And I you know, I'm the first to admit, I don't know how it's all going to play out. And the consequences of how it plays out are enormous. That's what makes it both fascinating and terrifying.
Speaker 1Brent Johnson Well, that's, you know, it's, it's, that's exactly right.
Speaker 2And you know, I, people who have heard me talk before know that I love movies. I love good stories. And a story where everything goes up into the right in a straight line is extremely boring. It's never going to win an Oscar, and nobody's going to remember the story. But if you have a few pitfalls along the way, and you have the hero get into a hole, and he has to dig himself out, that's what makes that's what makes it pretty interesting. And I think that's what we're trying to do. I feel like we've had a lot of peaks and a lot of holes over the last five years. And I kind of feel like we're going to have kind of the same for the next five. So I don't think I don't know what's going to happen. But I don't think it's going to be boring.
Speaker 1Yeah, I feel like our two big, you know, pitfalls, obviously, let's just say them out loud, like COVID and and what's happening with the Iran war right now, to me, those are like, these two episodes that have demonstrated, among other things, what we've all come to see is like a supply chain. vulnerability and the vulnerability of the US economy, letting other countries, usually, namely China, do all kinds of things that we consider too messy to put in our own backyard, in short.
Speaker 2Yeah, and I think I, you know, one of the one of the things that we've been talking about quite a bit is that, you know, I think those days of, you know, having one supply chain or over, I don't I don't think that's some great revelation. On my part, no, I think the consequence, I think the consequences of that are still kind of underappreciated. And it's my view. And I know a lot of people disagree with me on this. My view is that while it will not be easy, and there will undoubtedly be pain involved, that the United States will be able to make those changes, not perfectly, but in my opinion, better than many people expect them to be able to make it. And I but but but that's the the arc is not known, the timing is not known. And the pitfalls are not known. Right. And so I think it's just really, really hard to bet against the United States when I when I because I, you know, I look at the whole world. And when I zoom out, and I and I look at all the different areas of the map. And if I were to be able to choose one of the pieces of the board, with all the problems that it has, but also the advantages, I still land on the United States being in a relatively good position. relatively good position. And that has that has influenced my thinking for for quite a while now. It's not to say there's not trouble. And I think you're right to point out the the current Iran episode is is a perfect example of that. And and I and I also think the reason that Iran is even happening is because of what you already talked to, you know, mentioned, it's a supply chain issue. It's a great power competition with China issue. It just so happens that Iran is a very, very important piece on the board. And, you know, and in many ways, I don't even think it's about Iran. It's probably more about China than it is about Iran. But Iran happens to be a very important piece on the board. And the last thing I'd say, and I know I'm rambling a little bit, the last thing I would say with ramble away. I think a lot of a lot of times, people will dismiss the idea that there is some kind of plan as it with regards to Iran, because they don't think Trump is smart enough to play 3d chess, or the government doesn't have some super big plan, or, you know, this is all just being made up as we go. And what I would say to that is, it's not that that's totally wrong. But if you don't think that the people at the top, meaning the top of the Pentagon, the top of the White House, the top of the government, and not just in the United States and other countries as well, if you don't think they play chess, and if you don't think they don't think of the globe as a chessboard, you're wrong, you're quite simply wrong. They do think of it that way. Now, perhaps they shouldn't, perhaps they shouldn't. And perhaps, you know, the lower levels of society suffer as a result of them looking at the world that way. But they do look at the world that way. That is a fact. And I think it's a really important to understand that.
Speaker 1Yeah, established over many decades, like you can say they're terrible chess players, as you said, they shouldn't even do it. Think all that. Think all that. But don't say, don't suggest that these people are, are sitting in the Pentagon saying, well, you know, what's what's Trump going to tell me to do next, or something, you know, something like that. It just doesn't, it's not totally improvised. It can't be. That's right. And, but I'm glad that you mentioned the US, because that was the first time I don't know if you recall, but the first time we ever had you on the show, we, I wanted to talk to you about the milkshake theory, you know, and because, that my whole career, which started in like, 1997. My whole career, I started working for the parent company of the company that I, the origin company, I don't know what the predecessor, I think you're supposed to call it, like, that was founded by, by the, you know, sort of gold stock, dollars going down the, down the tubes, folks, you know, that the dollar doomers, and they're still around, there's still plenty of them around. And
Speaker 2it's not like the the ongoing
Speaker 1degradation in dollars compared to, you know, various assets is, is, you know, it exists, it's real, I don't, you know, we don't deny that. But the US dollar seems in the face of all that credit, all those, albeit valid criticisms, you could even say, it's, it's still looking pretty darn good. It's still working pretty well. Like, I don't need to do anything, but use dollars in all kinds of places. And I just, you know, I use a debit card and a credit card. I don't need, you know, Bitcoin or weird other stuff. I just use dollars all over the place in taxi cabs in foreign countries. You can hand them dollars. I mean, it's just the way it is still.
Speaker 2Yeah, that's right. And, you know, and to your point, the criticisms are valid. The problems with America, the problems with the dollar are valid. But again, if we come back to reality, it's a relative world. And if there was another country out there in the world that was using, I don't know, let's say gold or some other kind of hard money and had done a good job of managing their finances and weren't in a fiscal imbalance or a trade imbalance or a budget imbalance or didn't have too much debt, then perhaps that would spell some doom for the dollar. The bottom line is there are no countries out there like that. Or if the ones that are like that, they have too many other significant problems. To realistically dislodge the dollar from its place as a global reserve currency. Now, that's not to say it's not to say that the dollar won't lose purchasing power. My response to that is the dollar is designed to lose purchasing power. The government doesn't want it to hold purchasing power. So if it loses purchasing power, that's actually working the way they want it to work. Right. And so, again, it's not that any of these positions are wrong or the analysis bad. It's just understanding what it's supposed to do and what it's not supposed to do. And regardless of what our morals or what our wishes tell us the world should be, this is the way it is. And that was a big lesson I learned. That was a big lesson I learned about 15 years ago.
Speaker 1Yeah, that's been a tough one for me because I thought we all think of it as, you know, fiat currency is just darn evil and it's going to it's going to blow up just like all the other fiat currencies have always blown up. And it's it's hard to sort of step back and say not what is right and wrong. What is happening? What are folks doing? What is really happening? How is the world actually operating in this moment? You know, regardless of my beliefs about how it should. And that whole idea, even that gets bigger across all my thinking. It's just like Hayek has a wonderful quote about economics being about. People learning about all the things they can't design, right? And you can't design. You can't say the world runs on your morality, right? That's right. That's right. And then the day you day you sort of wake up to that, you go, oh, OK, so I can own gold and dollars, right?
Speaker 2Well, that's that's the big thing. And I again, I'm glad you brought that up because this is a point that I'd like to make is like you don't have to hate the dollar and you don't have to think the dollar is going to collapse. And you don't. You don't have to think the United States is going to go into the Great Depression to own gold. In fact, I have argued for a long time that a strong dollar is in the long term the best thing for gold. I don't see them as the mortal enemies that many do. And in some ways they're complementary. But my research has told me, and I think this holds true if you really analyze it, that a strong dollar will do more to wreck the monetary system than a weak dollar. In my opinion, a weak dollar just personifies the system and it perpetuates the system. But a strong dollar causes all kinds of problems and in many ways would force the system to be restructured. And if and when the system gets restructured, I think that I think gold will hold up its hand and say, hey, I am a valid and worthy candidate, not that I expect the governments to go back to gold. But, you know, I think gold, gold, the gold, if you look over the last 15 years, the or let's say, yes, since since almost 20 now, since the global financial crisis, the dollar index was around seventy eight or seventy nine. Today it's at one hundred. So it's gone up 20 percent versus foreign currencies in 15 years. It's more entrenched today than it ever has been before. And yet gold has gone from seven or eight hundred bucks to four thousand bucks. So you don't have to have the dollar falling or dying or going into hyperinflation for gold to do really, really well. And and so I think I think once you get out of your head that the dollar doesn't have to die in order for gold to do well, the world opens up to many more possibilities.
Speaker 1And never mind the fact that it's sort of like the John Prine song, Dear Abby, which has a wonderful line in it that says, stop wishing for bad luck and knocking on wood, which is what you know, if you think if you think all these horrible things are going to happen, but you own gold, so you're going to have fifty. Thousand bucks an ounce gold or, you know, wishing for bad luck and knocking on wood. Right. So never mind that even. I'm I'm glad I'm glad we got here. And as I sort of hoped we would, the idea that you step back, be more objective, look at how the dollar actually works and and the fact that it's engineered, as you say, to lose to lose its value over time. To decline in value over time and you can still own gold even though the dollar is remains the world's reserve currency. With this in mind, do you make anything special? Because many people do make something very, very. They make this point about gold overtaking dollars in central banks as a reserve asset. You know, they hold. I think that's a
Speaker 2really I think it's a really important thing to understand. And and it's valid. Now, I will say a couple of things. Actually, I'll sell several things because this is actually kind of central to my overall
Speaker 1framework. I might have known that.
Speaker 2So you've you've seen these charts where, you know, the the the gold gold as a as a reserve asset is rising and treasuries as a reserve asset is falling. And those those charts are absolutely correct. There there is there there should be an asterisk, though, because part of the reason those lines have crossed the way they have is because the gold price has gone up a lot and bond prices have fallen a lot. It's not. Specifically, the number of gold units have been purchased and number of bond units have been sold. That's part of those charts. But a big part of the charts is just the fact that gold has gone up four or five X and that bonds have fallen 20, 30, 40 percent, depending on where you're at on the curve. And so but. When I first started talking about the milkshake theory, God, eight years ago now, the very first thing I said was that I thought we were finally at a place with after 40 years, interest rates were going to start to rise. And I said that that would cause bond prices to fall. So I am not shocked at all that the bond prices have come down. And as part of that very first time, I said, we'll eventually get into a period of time where the dollar and gold rise together. Now, since then, you know, I think when I first said that the dog, the. Dollar index was at eighty eight or eighty nine and today it's at one hundred and over that time. So it's gone up, gold has gone up. And we said that the reason we thought gold would go up a lot was not because the United States would start buying a bunch of it, but because foreigners overseas would be the primary driver. And that's exactly what we've seen as as foreigners have purchased fewer Treasury bonds, they're still buying Treasury bonds and foreign holdings. Of US Treasury bonds have never been higher than it is today, but they're not buying them at the same rate and they're buying gold at a higher rate. But but but that's a big part of of of why we've seen that. I do think we'll get into a period where all sovereign bonds will get repudiated, will get sold. And we're already starting to see that if you look at yields around the world on sovereign bonds, whether it's Europe, whether it's Japan, whether it's. Some of the other smaller Asian countries, you see the yields rising as those bonds are being rejected. One of the very few outliers is China. Their yields have been coming down. The reason their yields have been coming down is because it's not an open market. Ninety six percent of all Chinese sovereign bonds are owned by Chinese entities and they are going through extreme deflation. Right now, and so because, you know, Chinese entities don't want to buy stocks in China, they don't want to buy real estate because they have a real estate crash in China. They're just buying Chinese Treasury bonds because they get a tax break to buy those and they know they'll get their yuan back. And so but but I think if you if you look overall, I do expect gold to remain a primary. Holding of central banks. The one thing I would say in addition to that, though, is those actions have consequences. And what I mean by that is. Last year, a number of central banks purchased gold or over the last several years they've been buying gold. Part of the reason they buy gold is they want to have something in their treasury besides U.S. Treasury bonds. Also, they know their own local currencies. are not doing very well. And so they want to they want to hold something that retains value. Another reason is they want to be a they they they want to have something other than dollars because of what happened with the Russian treasuries or with the Russian foreign exchange reserves in 2022. But ultimately, they're still building up reserves that they can liquidate in a crisis in order to get dollars. And so that's I think that's a big reason why we saw gold have while it had such a great year last year. As soon as the war kicked off this year and liquidity started to dry up, risk started to rise and countries needed increased dollars to buy now higher priced oil, food and other needed commodities. They started selling gold to get the dollars to then buy those commodities. And so you saw Russia sell gold. This year, you saw Turkey sell gold. This year, you've seen the Gulf states, which are primarily impacted by the Iranian, you know, episode sell gold this year. And I don't think that's an accident. You know, if you have two parts of your reserves, one of them is suppressed and the other one has gone up a lot. It's not surprising that they sell the one that has gone up a lot in order to get that liquidity. So I think until the system resets and whether that happens next year or a hundred years from now, we're going to have to wait and see what happens. I don't know, but until the system resets, people, institutions, corporations, governments, they still need dollars to operate on the global stage. So if you are going to operate on the global stage, you still need dollars to do it. That may change someday, but as of right now, that is still the way it is.
Speaker 1Yeah, and I think, Brett, you may have been the first person who introduced me to the idea. And the reason I'm talking about this is that when people talk about, you know, the dollar doomers always point out that the U.S. has, the U.S. government has 40 trillion in debt. It's a real point. It really exists. I get it. But I think you may have been the first person to point out to me that all the dollar denominated debt around the world, it just creates more demand for dollars. I mean, it's just, it's self-perpetuating in a way. And this is where,
Speaker 2this is where. This is where the intersection between capital markets and geopolitics comes in, because the reason that that debt outside the United States exists. So first of all, let me step back. You're right. The United States owes like 40 trillion. Everybody knows that.
Speaker 1We owe it to ourselves.
Speaker 2What not as many people know is that the rest of the world owes far more than 40 trillion. They don't owe it to the United States. They owe it to each other. And it's in dollars. It's in dollars. So if. If the United States has a problem with 40 trillion dollar debt, how does the rest of the world not have a problem with 40 trillion in debt? And it's in a currency that they can't print. So they have to go buy it somewhere. They either have to earn those dollars or they have to go on the open market and buy it. And the fact that they have to service all that U.S. dollar debt and pay off all that U.S. dollar debt creates an automatic automatic demand for dollars. And where it gets even more. What's the right way to say it entrenched is that and this is why this I know I'm jumping around a little bit, but part of the reason I say the weaker dollar just perpetuates the system is the only way to increase liquidity in the system is to increase the amount of U.S. dollar debt because when the U.S. government, whether it's the Treasury or whether it's the Fed, they are the only ones that can create base money. That's reserves. But then those reserves are used. Those reserves don't go out into the global economy. They get traded. Those reserved are used as collateral to loan new money into existence. So the way that the world gets flooded with new dollars is new debt is issued. And with that new debt comes the liquidity. Right. So the only way to get the dollar index to go lower is to increase the amount of debt in the world. And so there's. There's a timing mismatch. There's immediate liquidity, but there's delayed demand because you get the supply of dollars immediately. But the demand to pay them back doesn't come for one, two, three, four, five, 10 years. But eventually that demand does show up. And then that's how you get the dollar going higher again. And so it's I always tell people that the best example of this and the easiest one to look at is what is covered. Let's just use the last five. Five years. You know, the dollar went up very quickly during COVID. So the Fed came in, they did QE, they opened swap lines, they did these bailouts, they did PPP loans, they flooded the system with liquidity. And the dollar fell a lot. Asset prices went up a lot. We had inflation because now there's more money in the system. But then a couple of years and everybody said the dollar is going to zero this time. It really is it. But then a few years later, all of that money that was loaned into existence, you have to start paying it back. And in 2022, the dollar index went to a 30 year high. It went to like 113 or 114 or something like that. And that is a result of all that liquidity that was generated had U.S. dollar debt attached to it. And as that debt started to come due and as the Fed started to raise interest rates, it put a squeeze on the whole world that had borrowed those dollars. And it, you know, it caused the dollar to fall. It caused the dollar to go higher. So it's a it's it's kind of a it's kind of a mind mind meld. You kind of got to you kind of got to flip the way you think about things. But once you see it, it's kind of like the matrix. Once you see it, you can't unsee it. But but it is a little bit counterintuitive to understand how that happens in the first place.
Speaker 1So tell me then, Brett, how you said earlier, and I've heard other people say this to other folks that I have a lot of respect for, that the dollar won't it won't become broken through through weakness, but through strength, through great strength. Can you just sort of give me a, you know, I'll be at hyper simplified scenario or some explanation of that?
Speaker 2Sure. Well, long story short. I think what happens is, again, as I said, if the dollar gets weaker, just more debt gets created, right? Credit credit gets extended. But when the dollar goes higher, that puts pressure on anybody who has borrowed them. And then that's how you get defaults. You get a credit crunch, you get defaults, and then you get a liquidity crisis. And so, you know, but but in that scenario, the dollar is going higher and higher and higher. You have to understand the reason the central banks, governments. Monetary authorities, the reason they do stimulus, the reason they do bailouts, the reason they do quantitative easing is because the currency is getting stronger, not weaker. If the currency was getting stronger, they wouldn't have to create more. I'm sorry, if the currency is getting weaker, that means there's plenty of it. They wouldn't have to create more. It's only when it's going up and it's creating pressure that then they have to come in and supply more liquidity. And if they can't create it quick enough or fast enough or get it to the right place. So. And then you get a credit crisis and that is something like 2008. It's like something like 2020. And then that's what that's what would cause a reset. That's what would cause a reset. And so it's very possible that we will eventually get into one of these currency crisis or sovereign debt crisis where the dollar is going much higher versus foreign currencies. Foreign currencies are losing value. Perhaps gold is going higher because it's one of the few safe havens. But it's putting. A. Tremendous amount of pressure on the global monetary system. And that forces the world to come together and figure out a new solution. They reset it. They wipe out the debt. They forgive the, you know, the liabilities. And that's how you get your reset. But but again, it's a stronger dollar that causes the reset, not a weaker dollar.
Speaker 1Right. And I should have intuited this because a stronger dollar is a more expensive dollar. Right. It. It just takes more to get it. You need to give up more stuff to get it more labor, more assets, more whatever. And that so that naturally creates a stress on things.
Speaker 2I think a good way that that's exactly I think a good way to explain this is let's pretend five years ago when gold was around, I don't know, twelve hundred or thirteen hundred or whatever it was. Let's say you you borrowed a million dollars in gold. Right. Or but but units, you borrowed a ton of gold. You. The physical unit, not the price, but the physical unit. Right. And then it was a five year loan. And this summer it comes due. Well, you borrowed it when it was at twelve hundred or thirteen hundred. Now it's four thousand. So now it's it's going to cost you a lot more to pay off that that loan. That's the same dynamic that the rest of the world has to deal with with dollars because they borrow in dollars because you need dollars to operate on the global stage. Now, again, it doesn't matter whether you think they should borrow dollars or not. They do. And there's a lot of like I said, there's over there's there's tens of trillions of dollars that have been borrowed by global borrowers, non U.S. borrows. And so as the price of the dollar goes up versus their own currency, it's more expensive for them to pay back.
Speaker 1I'm curious if you have a number, Brett, on
Speaker 2ex-U.S. dollar-denominated debt. Well, the Bank of International Settlements put out a report two or three years ago that they said it's at least $80 trillion. And that's all that they could sort of measure. So my guess is it's over $100 trillion. But what this causes is, the reason this is important to understand is because this is, I don't know, you've probably heard me say this before, but other people have said it as well, is this is how the United States can use the dollar as a weapon. Because if they can put other countries under pressure, they can then negotiate better terms. And so if they raise rates or if they withhold supplies, they can then negotiate better terms. And so if they raise rates or if they withhold supply, or if they don't extend a swap line, and a country comes under pressure because they can't afford to go buy those dollars that they now owe, they can then, that's weaponizing the dollar against that country. And then they can say, okay, we will give you a swap line. We will give you this liquidity. We will grant you this new loan if you do these things for us, right? And I think for much of the last 40, 50, 60 years, this process was managed for the greater good. And they didn't necessarily have a lot of strings tied to this monetary liquidity. But going forward, I think we, you know, as you very rightly pointed out at the top of this episode, we're moving into this environment where we're not cooperating with the rest of the world the way we used to. Things are not being negotiated on a multilateral basis. They're being done very transactionally on a bilateral basis. It's hard to imagine Trump sitting by and letting the Fed extend a swap line to the ECB, which then bails out Airbus if Boeing is in trouble, right? And so I think going forward, you will see the U.S. put much more stringent strings on these swap lines and this dollar liquidity. And if they do provide that liquidity at all, there will be some, you know, some specific actions that are required to get that. I think a good example that we could use, and by the way, I know this is not just me coming up with this theory, like Scott Besson, who's the Treasury Secretary, has literally come out and said this, right? And he has given examples of how he has done this. And so again, this is not theory. This is real world stuff. I think a very good example, probably the best example is Argentina. Argentina came under pressure last fall. You know, they had had, they had been given some liquidity from China. They had a swap line from China. But there are, you know, but the United States with its, you know, now focus on the Western Hemisphere didn't want China in Argentina. So they say, we'll give you a swap line, but you got to reject the swap line from China. And so, you know, the United States bailed them out. And then, you know, it just so happens that Argentina also has a very good example of how China has been able to get those natural resources, energy, farmland, water, to rare earths. Who do you think is now, I mean, this isn't explicitly stated, but who do you think is now in line to get those as those assets get developed? They're not, I can tell you, they're not going to go to China, right? And so it's, again, I'm not saying these things should be done. I'm not saying it's the right way. I'm just saying this is what's happening. And it's important to understand this. Again, this is the intersection of capital markets and geopolitics. And, you know, for many, many years, it didn't matter. I think it matters now.
Speaker 1I agree. I agree. That's, yeah, that's, that's where we are. And the understanding is more important than ever for just, I think it's more important for regular folks, you know, who listen to this podcast and read our newsletters and stuff.
Speaker 2One thing that. Quick, because I always like to make this point, because I often will talk to people who will either say, or they'll show me this picture of all these skydivers, and all of the skydivers have a currency on them. And it'll say they're all crashing. It's just one is falling. You know, one's going to crash last. Right. And it's not, it's an accurate description of what's happening. But it makes, but it's used in a way that to say that it doesn't matter. They're all going to crash. So it doesn't really matter which fiat you hold, because they're all going to crash anyway. And that is completely wrong. And I'll tell you why is because if all you care about is purchasing power, if you don't have a job, if you don't have a business, if you don't have to pay any bills, if you have a secondary or third source of income that shows up every month that you don't have to go out and earn yourself, then perhaps fiat currency doesn't matter. And perhaps the fiat currency doesn't matter. And perhaps the relative levels of fiat currency doesn't matter. But if you do have a job, if you run a business, if you operate on the global stage, if you care about capital markets, if you care about geopolitics, the relative levels of fiat currency are probably the most important thing that nobody understands. And if you go back and you look at every fine global financial crisis for the last 50 years, every one of them had an element of a currency rising very fast versus another currency. Because that is how countries end up getting in trouble. That's what causes liquidity crisis. That's what causes bailouts. That's what causes credit crunches. And so it's really, really important if you don't have to worry about, if the only thing you have to worry about is purchasing power, you are an extremely lucky individual. Because most everybody else in the world does have to worry about things other than purchasing power. So I think it's really, really important to understand these dynamics regardless of who you are.
Speaker 1Right. I'm glad you mentioned it. I'm glad you mentioned purchasing power. Because I'm realizing, well, you know, let's say we get into this ultra strong kind of dollar environment that we, you know, mentioned a moment ago, where, you know, the dollar gets broken by, by being too strong. But when the dollar is strong, I mean, certainly US wage earners would like that, wouldn't they? That would be good for them.
Speaker 2Yeah, I mean, that's the other thing is that, you know, when the dollar is strong, it makes it easier to buy. And that's the other thing is that, you know, when the dollar is strong, it makes it easier for US wage earners. Now, it doesn't make it doesn't necessarily mean it's easy. It doesn't mean you can have you can have inflation, you can have rising prices with a rising dollar, but it's easier for the but it's real. That's right. And so and here's here's and so let's go back to the 3d chess players. The 3d chess players know this, right? They know that war is a relative game. Now, whether it's a little kinetic war, it's a relative game. And, you know, there are going to be casualties. No, unfortunately, right. But when they when they measure whether it's going to work or not, they know they're going to get punched, but can they still stand while the other guys pause that that's kind of the analysis they use. And so I think this is a good example of Iran. You know, the idea that the US military did, did not know that the Strait of Hormuz could be closed, or they did not know that Iran had drones that could hit ships. And they did not know that Iran was a mountainous region that would be extremely hard to, you know, do a land operation. It's again, it's extremely silly. Of course, they know these things. Now, just because you know, these things doesn't mean you necessarily have a perfect plan that can avoid them. But but they do know them. And I think they did the analysis. And they said, Okay, if we do this, these really bad things can happen, right? On the left edge, we get World War Three. And on the I guess if you look at the full distribution, on the left edge, you get, you know, World War Three, which they don't definitely don't want. But on the right edge, it works. And I think they can live with everything other than the left edge. Like, in other words, if we don't get work, if things are bad, but we don't get World War Three, we can live with that because while it will be tough, we're better able to handle that than the rest of the world. And if it happens to work, then that's good for us. Now, many of us don't necessarily like that decision methodology. But again, we get back to that's the methodology that's used. And the reality is, is that, you know, Southeast Asia, Africa, many of the European nations, even China, would suffer much more from the straight being closed than the United States. It's not that $6, $7, $8 gas wouldn't hurt in the United States, it would definitely hurt. But it wouldn't hurt as much as it would hurt the other countries. Right?
Speaker 1Yep. And, and in a bigger way to getting back to the, the original milkshake theory, like if you, if you hate the US dollar, well, by definition, you, it doesn't make sense not to hate all the others even more. And if you think the US dollar is going down, well, then you have to think every other one is going down first. Right? That's right.
Speaker 2That's right. So the order, in my opinion, the order of the dominoes matters. And it matters a lot um and the other thing is you know these games can go on for a very long time right i i literally know people who haven't gotten back into the market since 2008 because the next crisis is just right around the corner and listen it's it's not that it's not it's not that they're totally wrong there there are a lot of bad things out there that could go really really wrong but that's almost 20 years ago now right and this could go on for another 20 years before it all comes down maybe it goes on longer than that but um this is not i i don't want people to think that i'm you know i don't want people to be pollyannish and not worry about the problems or not think about the problems i think it's incredibly important to understand the problems and think about them but it's it's also not healthy to only focus on the problems and not see the bigger picture
Speaker 1right exactly yeah and and not see the opportunities like you see the straight horn moves everybody goes oh everything's too expensive you know oil's more expensive and then they start listing all the sulfur and the naphtha and all the other things that go through there and then you know if you really think it through and keep going you might you might do as i have done and and bought a chemical company or two because you know that the u.s gulf coast is like you know you're not going to be able to buy a chemical company or two because you know that you're not going to be able to buy a chemical company or two because you know that the u.s gulf coast is like you know you're not going to be able to buy a chemical company or two because you know that the u.s gulf coast is like the low-cost chemical cracker of the globe right yeah so you'll you'll wind up and if you just follow these things down forget about what you think ought to happen as we've been saying and saying and and what is happening and what should happen next what could happen next is likely to happen next i should be saying you wind up with finding some opportunities that you you might not have expected to find right
Speaker 2that's right and i think some of the i think some of the things for me um i i think the big effects for me ron are really not even felt yet i think they're more likely to be felt later this fall even early next year third order absolutely yeah yeah i i i've we in the spring we started buying corn and wheat um we is and it's funny because this has actually worked out pretty well so far we'll see if it will continue to work out but we expected that we started buying corn and wheat and we started buying corn and wheat and we but we expected prices would go down over the summer um partly because we thought there would be at least a short-term ceasefire or some kind of a pause um but then we thought we would buy we would add to our positions if that happened which we did and now they've started to come back up but i don't think i think we i think corn and wheat soybeans soybean meal i think these could really do well kind of late q4 early next year because i don't think we're going to be able to do that until late q3 early q4 what the crop yields are going to be like and i think the crop yields have a very high potential of being affected as a result of a lot of the fertilizers chemicals other needed inputs for agricultural planting seasons didn't make it out of the the straight you know in the spring planting season for the northern hemisphere or the or the winter planting season for the for the southern hemisphere and you combine that with this year as a el nino year mm-hmm it's a and this this it's not necessarily a prediction it's just a setup i see the setup i see the potential for it i don't know for sure what's going to happen but that's a setup i'm willing to play right yeah and the other thing is if if you zoom out and you look at corn and wheat just from a really really long-term chart they're they're close to their lows so it's not that they can't go lower but i think i don't think they can go a lot lower but i think they could go a lot higher and so that that's an area that we've been investing in this year and we think has potential later like later this year early next year
Speaker 1that's what i'm talking about how do you how do you play these how do you buy them
Speaker 2well we do uh both through some companies and then and the futures and so um that that it's just kind of a pure play for us on the on the move of the commodity um okay you know i think uh um you know there's there's some etfs you can buy too the etfs aren't great it's always better to buy the futures than to buy the etfs um but but but there's there's a numerous ways to do it the other thing that i i don't know i haven't heard too many people talk about this and we'll see how it plays out but i think another ramification of an ongoing crisis in iran is the mro market which is maintenance repair and overhaul for wide body jets it just so happens for many reasons um over the last 20 years that the gulf region became one of the key mro happens for wide body jets and wide body jets do the most uh for for for for cargo and so the the reason this is important is if these maintenance repair and overhaul uh operations are not done on a specific schedule and if a date gets missed by law these planes get grounded and if the planes get grounded they don't fly and if they don't fly then the goods don't get moved and so then you end up you have one supply chain crisis end up affecting another supply chain crisis or or causing another supply chain crisis um and so that hasn't really started to show up yet but i think that has the potential to show up q4 q1 of next year
Speaker 1that is interesting do you want to share a ticker symbol or no for that one i try
Speaker 2not to give uh specific ticker symbols uh i'm regulated by a couple different agencies and i gotta be very careful of getting giving specific advice fully understand but but go you know i i can say this go to google go to clog go to chat gpd put in mro and look for the top public companies and you'll get a bunch of the list that's right google
Speaker 1publicly traded mro stocks and you'll be there i mean i would imagine there's not a hundred of them right yeah all right well that's awesome those those are two really good ideas um i think this is actually a really perfect moment to ask um our final question which is the it's the same for every guest um i'm hoping that you don't remember i've asked you before when you've appeared on the show i hope you don't remember it it works i feel like it works better that way um whether we have you know um sometimes every now and then we have a non-financial guest same identical question okay and it is simply this it's for our listeners benefit if you could leave them with one takeaway today one idea what would
Speaker 2you like it to be oh there's so many good ones but i think it's a good idea i think it's a good idea i think it's a good idea i think the most important one is to understand the difference between what you want to see happen and what is likely to happen it's one we all want the world or many of us want the world to be a specific way um unfortunately it's just not that way um and the nicest uh most moral most ethical way of doing things is not necessarily the most likely way things are going to happen and if you are going to put your heart and soul into it and you're going to put your heart and soul into it money on the line you better have a very good reason for doing so and it better be more of a reason than just you want to see it happen and so when you're putting your money to work do a very very cold-hearted analysis of what you think is actually going to happen before you do that
Speaker 1boom love it i love that of all the things we talked about i'm glad that's the one that you honed in on for the final question so thanks for that and thanks for being here brent it's always a great pleasure to talk with you
Speaker 2thanks for having me happy to come back if you remember
Speaker 1nothing else from this podcast nothing else please remember brent's takeaway don't look at the world as some place where you know it's your investing is based on something that you want to happen or that should happen you know kind of a moral view or a political view believe me i made all those mistakes and you don't want to make them look at how the world actually operates look at what is actually happening and take that personal political or moral viewpoint out of the equation and i promise you it'll be 10 times easier to say to look at what's going on in the world and say oh i see this implication for what's going on and just say the straight of horn moves today so i think this is a pretty good setup as brent described um in the case of uh corn and wheat i think this is a pretty good setup and i think this is a reasonable bet to take you know this is low low downside and high upside as he described it you may not agree with that viewpoint of his but that thinking that is what i want you to do that is what we all should do when we look at the world especially when it comes to geopolitics and macro themes those are the most dangerous places for a you know a highly moral or personal political viewpoint to kind of take over your thinking and send it down the wrong pathway so i'm just gonna that's all i'm gonna say because i want to double down on brent's final thought and tell you that that really is very very important especially when it comes to macro and geopolitical based investing so another great conversation with brent we've had him on before we'll have him on again really brilliant guy that i just want to check in with on a regular basis so you can hear what he's thinking so uh yeah another great interview and another great episode of the stansberry investor hour i hope you enjoyed it as much as we really did and remember click like and subscribe and sign up for our free daily email opinions expressed on this
Speaker 2program are solely those of the contributor and do not necessarily reflect the opinions of stansberry research its parent company or affiliates
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