openpolitics.com

Watch Brent Johnson’s follow up to The Dollar Milkshake Theory: https://rvtv.io/2tdRouM and The Great Dollar Debate with Brent Johnson and Luke Gromen: https://rvtv.io/2TGSnza only on Real Vision. — Santiago Capital CEO Brent Johnson rejoins Real Vision with a plethora of predictions that revolve around a strengthening dollar. Johnson believes that a global currency crisis looms, but that there is a bull case to be made for the greenback, gold and U.S. equities. Filmed on May 29, 2018 in San Francisco. Published on June 6th, 2018.
Transcript

00:06
Now, one thing I want to make clear is this is not a story that ends well.
00:09
This is a story that ends very, very badly.
00:11
The strength of the dollar is going to cause such chaos in the global monetary system that
00:15
the safe haven that gold has always provided, I think, is going to become into higher demand.
00:20
And there will be a point where they rise together.
00:22
This isn’t a Pollyanna view.
00:24
I’m not saying to go out and buy equities, because things are good.
00:26
I’m saying, go out and buy equities, because things are bad.
00:29
Things are really bad.
00:30
It’s just that the road to bad looks much different than what the typical person thinks.
00:50
I’m really happy to be able to come onto Real Vision today, because I haven’t been this
00:52
excited about markets in a very long time– not because I think everything is going to
00:56
be easy, and things are fine, but really, because I think everything is bad, and it’s
01:00
going to be very hard.
01:01
But I think that it’s also going to present a lot of amazing opportunities for those who
01:04
can kind of see through the fog of what the markets are going to do over the next year
01:08
to two years.
01:09
Now, I’m sure over the next 30 or 40 minutes, there’s going to be a few of you out there
01:13
who agree with what I say.
01:14
But I know for a fact that there’s going to be a lot of people who disagree or who maybe
01:18
agree with part of what I say, but who are going to disagree with a lot of what I say.
01:22
And there’s also going to be some people out there who absolutely disagree with everything
01:25
I say.
01:26
And that’s fine.
01:27
What I’m asking you to do now is, at least for now, let’s put aside challenging me, and
01:31
just actually listen to what I say and think about how I might be right.
01:33
And if it turns out after you’ve actually thought about it and more than for a minute
01:38
or two, and you still want to have a conversation to discuss it, I’m more than happy to do that.
01:42
We’ve seen a nice bounce in the dollar after losing 10% to 12% on the dollar over the last
01:47
12 to 18 months.
01:49
So I think it’s a good time to discuss this.
01:51
I really think the dollar move higher is really just getting started.
01:54
Now, that doesn’t mean that there’s not going to be starts and stops, and in the short term,
01:57
it’s probably due for somewhat of a pause or even a short pullback.
02:01
But one thing I want to get across to people is this move is only just getting started.
02:05
The dollar, in my opinion, is going to go much, much higher over the next year to two
02:09
years.
02:11
And so as I get into what the actual dollar milkshake theory is, it really comes down
02:16
to the fact that I think the whole world is really one trade right now.
02:19
And it’s the trade on the dollar.
02:21
Everything wraps around the dollar.
02:23
I’m going to talk about gold after a while, but I think even gold– all roads go through
02:27
the dollar.
02:28
So even though I’m very bullish gold long-term, that road also goes through the dollar.
02:33
And so at the end of the day, why I think the dollar is so important is because whether
02:37
you’re talking about a company, whether you’re talking about a family, or whether you’re
02:41
talking about a country, everything comes down to cash flow.
02:45
Everything investing ultimately comes down to cash flow.
02:48
And if you don’t have enough supply of cash, then you need flow of cash coming through
02:53
to keep operations going.
02:55
And I really think that’s where the whole monetary system is right now.
02:58
And that’s really the heart of the dollar milkshake theory.
03:01
And so I’m going to get into that as we go further into the conversation.
03:04
Now, one thing I want to make clear is this is not a story that ends well.
03:08
This is a story that ends very, very badly.
03:11
But I think the road to badly is much different than a lot of my peers think it is.
03:15
To get really into the theory, we all know that the central banks of the world injected
03:19
$20 trillion of new money into the global economy over the last 10 years.
03:24
And I kind of title this as this is the milkshake that all the different countries created.
03:29
They pushed down on their syringes, and they injected this tons of liquidity into the market–
03:36
euros, yen, pounds, yuan, dollars.
03:39
And they created this soup or this milkshake of all this liquidity out there.
03:44
But now, while the rest of the world is still pushing down on their syringes, the United
03:48
States has– we’ve gotten this monetary policy divergence, where we’re not using a syringe
03:52
anymore.
03:53
We’re no longer injecting liquidity.
03:55
In fact, we’ve swapped out our syringe for a straw.
03:58
And so as we lift up on our interest rates, that sucks that liquidity to the US domestic
04:04
markets.
04:05
It sucks that liquidity up into our domestic markets.
04:07
And I think it’s going to push asset prices higher.
04:10
In other words, we’re going to drink the milkshake that the rest of the world is still mixing.
04:14
So the implications of this milkshake theory are several, and I’m going to try to walk
04:18
through them step by step.
04:20
But they really kind of all happen at the same time, and they all kind of go on at the
04:23
same time.
04:24
So while I’m going to try to walk through this linearly, I don’t want you to think of
04:27
it as necessarily a progression.
04:29
One might happen before the other.
04:30
They might happen at the same time.
04:32
But it’s really this soup.
04:33
It’s this milkshake that we’re dealing with.
04:36
So there’s three main implications of the theory, and the first part of the theory is
04:40
that the US dollar is going to strengthen.
04:43
And when I say the US dollar is going to strengthen, I don’t mean that it’s going to
04:45
strengthen a little bit.
04:46
I mean it’s going to strengthen a lot, and I hesitate to use the
04:49
word “supernova,” but it has the opportunity to really break out to incredible highs.
04:55
The second implication is that this dollar strength is going to lead to all kinds of
05:00
trouble in the global marketplace, specifically in the international markets and the
05:04
emerging markets.
05:06
And finally, the third implication of this is it will ultimately react into
05:12
a currency crisis.
05:13
And we’re already starting to see the beginnings of that.
05:16
The monetary system is just not designed for a
05:19
strong dollar.
05:20
So the implications of a strong dollar are really profound.
05:23
It really comes down to the flow that I was talking about earlier, but it’s the monetary
05:26
policy divergence as interest rates differentials eventually pull flow into the dollar.
05:32
Now, that hasn’t happened for a while.
05:34
The first part of the year, it didn’t look like
05:36
interest rate differentials mattered.
05:37
But you’re starting to see with a two or three-month lag that it actually does matter.
05:41
We’re also in a period where there’s not only this
05:46
increasing demand for US dollars due to the flow into the higher interest rates, but
05:51
we’re also– it’s compounded by the fact that we now have a situation where supply is
05:56
contracting.
05:57
So you have increased demand with contracting supply.
05:59
That’s through the quantitative tightening that the Fed is
06:01
currently pursuing.
06:03
The other thing is that demand for dollars– there’s a lot of talk about a lack of
06:06
demand for dollars.
06:08
There is an incredible amount of demand for dollars just to pay
06:11
the interest on dollar-based debt in the world.
06:14
Now, a lot of people will focus on the $20 trillion that the United States government
06:18
owes.
06:19
And that is a problem.
06:20
I’m not going to deny it.
06:21
But the fact is that there’s another $20 trillion outside the United
06:24
States, either through direct dollar loans or the shadow dollar market, that
06:30
international entities own.
06:32
Oh, and those are dollar-based demand that they need as
06:36
well.
06:37
And so if you add up all the dollar-based debt in the world, and if you just assume
06:40
that all that debt has the same rate as the US Treasury, which is 2.3%, which is
06:45
ridiculous.
06:46
There’s no way that that’s what all these different loans are actually made
06:50
at, but if they did, there’s over a trillion dollars a year in demand for dollars just
06:55
to pay the interest on the dollar-based debt.
06:57
And that stays the same, whether– even if people totally move away from the dollar and
07:01
never borrow another dollar going forward, there’s still a trillion dollars
07:06
in demand to service the existing dollar-based debt.
07:10
And the reality is it’s probably twice that high.
07:11
It’s probably $2 trillion.
07:12
Now, another reason is that– we’re getting into a period where the dollar is going to
07:17
go higher– is that the US debt ceiling is now gone.
07:21
And we’re at a place where the government is providing fiscal stimulus.
07:26
And this provides increased demand.
07:27
And what I mean by that is a year ago, we bumped
07:30
up against the debt ceiling, and we could not issue new bonds.
07:34
And so the checking account that the US government, that
07:38
the Treasury has at the Federal Reserve, had about $500 billion in it.
07:42
And they drew that down to less than $100 billion.
07:44
So they pushed $400 billion out into the system.
07:47
That created supply of dollars, and that’s part of the reason why the dollar dropped.
07:53
That’s completely flipped now.
07:55
Not only is the government not pushing that $500
07:58
billion or $400 billion out into the market, but they’re actually entering the
08:01
dollar market to get funding.
08:04
They’re selling bonds in exchange for dollars.
08:06
So you have a situation where the supply of dollars is
08:09
no longer increasing, and now you have the biggest buyer in the world– the US
08:13
government– entering the dollar market, buying dollars, competing with everybody
08:17
else.
08:18
That’s a recipe for price to rise.
08:20
Another part of the cash flow back to the United States theory is the US repatriation
08:26
after the new tax bill.
08:28
A lot of people didn’t think that even if they passed it,
08:31
governments– or I mean corporations– wouldn’t repatriate.
08:33
But we are seeing a repatriation.
08:35
And I think one thing a lot of people forget is it’s not just US corporates
08:39
repatriating cash back to the United States.
08:42
Foreign banks, foreign entities can also send cash back to United States, and they
08:48
can get that higher interest rate on doing it.
08:50
Now, if you don’t think that’s possible, just go look at the breakdown of the reserves
08:55
of the Fed.
08:56
Over half of the reserves, bank reserves at the US Fed, are from
09:02
international banks.
09:03
So not only are they going to do it, but they’re already doing it in
09:07
a big way.
09:08
Now a fifth reason that the dollar will gain some of this flow coming from around the
09:12
world is that as the dollar does get stronger, it creates chaos everywhere else.
09:17
And so the dollar will start to get flow just from
09:20
a safe haven demand.
09:21
And we’re actually starting to see this already.
09:23
We’ve got problems in Turkey.
09:25
We’ve got problems in Italy.
09:26
China has just recently come out and said they’re probably going to have to
09:30
lower their reserve ratio requirements and provide stimulus at some point over the
09:35
summer.
09:36
So we’re already seeing that the strong dollar is impacting other markets.
09:41
And I don’t really have time to get into the whole euro
09:44
situation, other than to say that the euro is
09:46
just– I mean it’s really a disaster.
09:49
I really don’t know how else to say it.
09:50
It’s just not a currency that is going to be able to function
09:54
long term.
09:55
They have all the same problems that we do.
09:57
Their balance sheet is bigger than ours.
09:59
They’re still providing stimulus.
10:01
They don’t really have a way to draw down the stimulus.
10:04
And they’ve also got the political problems on top of it.
10:06
So as people real– and they’re overregulated.
10:10
The number of regulations that have gone on in the EU in the last two years are
10:14
dramatic, and we’re already starting to see the impact that that has on corporations.
10:18
So I think all of these five combined are really going to push the flows back to the
10:22
US dollar.
10:27
So one of the arguments that I often hear is that, what if people just leave?
10:30
What if they default on the dollars that they owe
10:32
and just go off to a new agreement that they’ve created?
10:35
Fine?
10:36
Would that cause chaos?
10:37
It would absolutely cause a lot of chaos.
10:39
But is it possible?
10:40
Yes, it’s absolutely possible.
10:42
And that’s one of the reasons, by the way, you should own gold, because you
10:44
never know what could happen.
10:46
That said, one thing you have to realize is if these people default on their dollar
10:50
loans, and they leave, and they go somewhere else, in a debt-based monetary
10:54
system, it’s not just the debt that leaves.
10:56
It’s not just the obligations that leave.
10:58
Money disappears as well, because in a debt-based
11:01
monetary system, when debt gets defaulted on, money evaporates.
11:05
Money disappears.
11:06
And if money disappears, that means supply falls.
11:09
So if you think about this like a musical chairs example, and we’ve got a number of
11:13
digital or paper participants swirling around the limited number of monetary base
11:19
dollars that actually exist, if some of these players decide they don’t want to play
11:22
anymore, and they leave, and they default on that debt, that’s fine.
11:26
Demand falls.
11:27
But when they leave, money disappears as well.
11:30
So the chairs disappear as well.
11:32
And if the chairs start to disappear at the same
11:34
rate that the obligations disappear, if you get supply falling even faster than demand,
11:40
price still rises.
11:41
So I don’t buy that argument that they can just walk away and
11:43
that there won’t be any chaos and any implications involved with that.
11:48
Another thing I would say is even if they do raise rates, and it does cause a recession,
11:52
well, then, that means the US is now in recession, and the rest of the world’s biggest
11:56
customer now have a cold and cannot buy all the goods from those other countries
12:00
that they were selling before.
12:02
So that has a knock-on effect to EM, and I actually think
12:05
it hurts EM and international more than it hurts the US.
12:08
So even if that does turn out to be correct, I don’t think that that’s necessarily
12:11
dollar negative.
12:13
Now, the big one that I always hear is that the Fed is going to have to– again, they’ll
12:17
have to– they can’t keep raising rates, so they’ll have to reverse course, and they’ll
12:21
actually have to implement QE again.
12:24
And that’s not going to happen either, in my
12:27
opinion.
12:28
And the reason that I don’t think that that’s going to happen is because the
12:30
whole point of QE is to provide artificial flow from somewhere outside the current
12:37
market.
12:38
That’s the whole point of buying the bonds to get that injection.
12:41
When the Fed would buy bonds, they would inject currency
12:43
into the system.
12:45
So if you can get that injection of currency into the system from somewhere other than
12:48
the Fed, then the Fed doesn’t need to provide it.
12:51
And this is the heart of the dollar milkshake theory.
12:54
The rest of the world is still providing an incredible amount of
12:56
stimulus into the market.
12:58
But we’re the only ones with a straw.
13:01
Everybody else is pushing the liquidity out into the market.
13:05
The Fed has a straw, and they’re sucking up that liquidity.
13:08
And as they suck up that liquidity, that is an injection from outside the
13:12
domestic market into the market that allows the flow to keep happening.
13:17
And that is no different than QE if we were doing it ourself.
13:21
Just because they’re operating QE out of Tokyo or out of Frankfurt doesn’t mean that
13:25
those dollars or that liquidity– the euros, the yen, whatever– stays in those domestic
13:30
markets.
13:31
In a global marketplace, all those assets can flow to the US, and I think that’s
13:34
what’s going to happen.
13:36
And that is literally the heart of the dollar milkshake theory.
13:38
It doesn’t really matter who provides the QE.
13:40
What really matters is who captures the QE.
13:43
And with our higher rates and relatively better economy than the rest of the
13:47
world, we’re going to capture that QE.
13:49
One of the other arguments that often gets made is the fact that if the Fed continues
13:52
to raise rates, then it’s going to invert the
13:54
yield curve.
13:55
Now, I can’t argue with that.
13:56
If you look back at history, whenever the yield
13:58
curve inverts, it almost always does lead to a recession.
14:01
But what many forget to put forth when they put forth this argument is
14:04
that the length of time from when it inverts until when it goes into recession is typically
14:09
18 to 24 months, and that goes back on several occasions as well.
14:13
Not only that, but what happens during that 18 to 24 months is typically a speculative
14:17
frenzy.
14:18
And that leads to the blow-off top.
14:20
And if you think about it– and I can’t prove this– but if you think about the typical
14:24
yield curve that a bank would want, they want a very steep curve.
14:28
They want short-term interest rates and high long-term interest
14:31
rates.
14:32
They want to lend long, and they want to pay short, and they make that
14:35
spread.
14:36
Well, if that’s great for the banks, that’s probably not great for the speculators.
14:39
But if you reverse it, and you get into an inverted
14:41
yield curve, that’s not good for the banks, because they’re having to pay short and lend
14:46
long, and they’re upside down.
14:48
But if it’s bad for the banks, who takes the other
14:50
side of the banks’ trade?
14:51
Well, that’s the speculators.
14:53
And if the speculators can borrow long and invest short and make that
spread and lever it up, that’s like Disneyland for them.
And that leads to the speculative mania, and that’s what leads to
the crazy excesses, and that’s what leads to the blow-off tops that nobody think can
15:08
happen.
15:09
And that’s why I don’t think that an inverted yield curve– I don’t think it’s
15:11
negative for the dollar, and in the short term, I
15:13
don’t think it’s negative for the markets.
15:17
OK, so where does all this lead?
15:20
What does this dollar milkshake mean to us in the
15:23
United States?
15:24
Well, I think what it means is that we haven’t seen the blow-off top yet.
15:27
I still think it’s coming.
15:28
I think equities are going a lot higher.
15:31
And again, this isn’t a Pollyanna view.
15:33
I’m not saying to go out and buy equities, because things are good.
15:36
I’m saying go out and buy equities, because things are bad.
15:39
Things are really bad.
15:40
It’s just that the road to bad looks much different
15:42
than what the typical person thinks.
15:45
And I think that as we get into this inverted yield curve, as we get into problems
15:48
around the world, as we have currency crises, the United States is going to be seen
15:52
as a safe haven.
15:53
And all roads go through the dollar.
15:55
And when that money flows into the dollar, it eventually goes into US
15:58
assets.
15:59
And I think it’s going to push equities to all-time highs.
16:02
I also think that it’s going to have a big impact on bonds.
16:07
Now, I’m of the opinion that interest rates are headed higher.
16:10
I don’t necessarily think that bonds are going to
16:12
crash, but I think they are going to break.
16:14
And I think that that is going to have a big impact on assets as well.
16:18
Now, there’s no doubt that there’s going to be some
16:21
moments of pure panic and terror along the way.
16:24
I’m not sitting here saying that bonds are going to fall, equities are going
16:27
to go up, and it’s all going to be smooth.
16:28
I don’t think that at all.
16:30
I think it’s going to be really frightening at points.
16:32
But I think rates are headed higher.
16:35
And when you think back to the fact that there’s been a 40-year bull market in bonds, that
16:39
means somebody could have invested their whole life for 40 years and been a fixed income
16:44
investor and made money quarter after quarter, year after year, decade after
16:48
decade.
16:49
They have never really lost money on bonds as long as they were buy and
16:52
hold.
16:53
Sure, along the way, maybe they did some trading of bonds where they
16:55
lost money, but essentially, nobody has lost money in bonds in 40 years.
17:00
Well, now we have interest rates heading higher.
17:02
We seem to have broke out of the chart of truth.
17:04
Will we retest?
17:06
Sure.
17:07
Will there be some moments where bonds rally?
17:08
Sure.
17:09
But I think interest rates are headed higher, and when people actually start
losing money in bonds, I think that’s going to be a real wake-up call not just for  finance, but from an emotional perspective.
17:20
If you have made money on something for 40 years in a row, and then all of a sudden,
17:23
you wake up, and you’ve lost money, it’s kind of like the turkey at Thanksgiving.
17:26
They have 364 great days, but that 365th day is kind of a nightmare.
17:31
I think that can happen in bonds.
17:32
And as funds flow out of bonds, I think a lot of that’s
going to flow into equities.
17:39
And so all of this– again, I’ve kind of walked through this
17:42
linearly, but this is really all going on at the same time.
17:45
And as we’ve got a period where interest rates are headed higher, I
17:48
think around the world, as bonds start to break– not crash, but as they break– and
17:54
funds start to flow out of it, as dollars flow–
17:57
as funds flow into the dollar and push asset prices up, I really think we get into this
18:02
benign circle.
18:03
George Soros talked about it in his book, The Alchemy of Finance.
18:06
You get into a place where dollar strength begets more dollar
18:10
strength, because as the dollar strengthens, it causes all kinds of problems
18:13
for yen.
18:14
And as the yen gets into problems, people seek out safe haven back
18:18
into the dollar.
18:19
Now, gold will, obviously, I think, be a beneficiary of this.
18:23
But I don’t think people around the world are going to sell everything
18:26
they own and put all their money into gold.
18:27
In fact, we don’t need them to put everything into gold.
18:30
They can just put a little bit into gold, and gold does really well.
18:33
But I think the dollar is going to be the big
18:34
beneficiary, and I think, again, as I’ve said many times, all roads go through the
18:40
dollar.
18:43
So of course, as always, I have a lot to say about gold.
18:46
I think the first thing I want to get across is that my thesis on gold has not
18:49
changed.
18:50
Everybody should own gold.
18:51
It should be part of everybody’s portfolio.
18:54
And I’ve said for a long time that gold is going to go to at least $5,000.
18:58
That hasn’t changed.
18:59
Gold is going to go to $5,000, and the reality is it’s probably going to
19:02
go a lot higher than that.
19:03
But you know, for anybody that’s trying to put me– peg me down
19:06
as far as time and price, I’ll say $5,000.
19:08
Now, I don’t know if I’m going to necessarily tell you exactly when, but I still
19:12
think gold goes to at least $5,000.
19:14
The only question is when.
19:15
But part of the other thing is that– part of the reason that gold will go that high
19:20
is because it will be at least part of the solution
19:22
when this horrible system that the central banks have created eventually comes down.
19:28
This dollar milkshake theory is not one in which the dollar remains the world reserve
19:33
currency.
19:34
I think we’re going to get to a place where the dollar gets so strong, they’re
19:36
going to have to come to some new kind of Plaza Accord or some kind of a system
19:40
where they dramatically reduce the dollar.
19:42
But it’s not going to be that we reduce the dollar, and people are mad at us.
19:48
I think the world’s going to beg us to reduce the
19:50
value of the dollar, because the strong dollar, quite honestly, it just breaks the
19:54
entire monetary system.
19:56
It breaks international markets.
19:58
It breaks the emerging markets.
19:59
And it actually is, in the long term, not great
20:01
for the US market either.
20:03
But it doesn’t mean it’s going to happen right now.
20:04
So I think over the next couple of years, the dollar goes much, much stronger.
20:08
I think initially, that breakout is going to
20:11
surprise a lot of people.
20:12
I think it’s going to create a lot of chaos, and it will ultimately
20:15
be that chaos that makes gold go a lot higher.
20:18
I tell people all the time that a lot of the typical gold theory is that dollar gets
20:24
inflated away, and gold goes through the world, goes through the roof.
20:27
And there is that view.
20:29
But there is nothing that is more long-term bullish for gold than a strong dollar.
20:33
Before we get into that, let’s talk about a little bit why gold, quote, unquote, hasn’t
20:36
worked for the last several years.
20:38
Well, the reality is I think gold has worked for the
20:40
last several years.
20:42
Many of us in the gold world got it wrong as far as timing when it
20:44
would work in US dollar terms.
20:47
But if you’re not a US dollar investor, and you lived in
20:51
Cyprus or Russia or Argentina or Venezuela, gold works just fine.
20:56
Gold did what it has always done for 5,000 years.
20:58
It’s provided a safe haven when things got bad.
21:01
And the reality is that things did not get worse here in the United States over the last
21:06
five or six years.
21:07
And as a result, gold has not performed as it has in those other
21:11
currency terms.
21:12
But it doesn’t mean that gold isn’t working.
21:13
I think a lot of the pain and a lot of the frustration with those in the gold world that
21:18
are feeling the frustration from gold not having done anything are those who bought
21:22
gold as a speculation, not as insurance, or it’s those who told themselves they bought
21:27
it as insurance, but really bought it as a speculation or a get rich quick scheme.
21:32
If you bought gold as a hedge against the rest
21:34
of your portfolio and the rest of the world blowing up or all the spinning plates that
21:37
the central bankers have going crashing, then gold is still working, because the reality
21:42
is the plates have not crashed yet.
21:45
They will.
21:46
There’s no doubt that they will, but they haven’t yet.
21:48
And so gold hasn’t needed to do anything.
21:51
But gold’s been around for 5,000 years.
21:53
It’s always been, at least from a market perspective, a currency and the last currency
21:58
of resort, and that’s not going to change over the next 5,000 years either.
22:02
So if you’re a gold investor, and you have it in your
22:04
portfolio, and you didn’t put all your money in gold, you’re probably just fine.
22:08
So now there’s also many people in the gold world who will say that the only reason
22:12
gold hasn’t worked for the last five years is manipulation, that the decades long gold
22:16
manipulation scheme between the central banks, the governments, and the
22:20
commercial banks have worked together to keep the price of gold low.
22:26
Now, even if you take that view, the fact is you are still
22:29
wrong, because if you– this is not a new theory.
22:33
This manipulation theory has been out there for decades.
22:35
Anybody who’s spent more than five minutes in the gold world
22:38
knows about this theory.
22:39
So if you bought gold five or six years ago, four years ago, whatever it is, and you
22:45
were wanting it to pay off much quicker, and it didn’t, because you think it’s been
22:50
manipulated over that time period, well, the only reason you would have bought it
22:54
four or five years ago is not because it wasn’t manipulated.
22:56
You knew it was manipulated.
22:58
The only reason you bought it then was because you thought that the
23:00
manipulation was going to fail.
23:03
And the reality is the manipulation hasn’t failed.
23:05
If you subscribe to the view that gold has been manipulated
23:08
lower, then the manipulation is still working.
23:11
And so I think it would help a lot of people in the gold world if we would just admit
23:15
that we’ve been wrong for the last five years.
23:17
I didn’t think that the monetary authorities could keep the plates spinning
23:21
for another five or six years.
23:22
I thought it would come down much sooner than that.
23:24
I was wrong.
23:25
The plates are still spinning, but it doesn’t mean that gold has failed.
23:28
It just means we got timing wrong, and I think the fact that if you say the words, “I was
23:34
wrong,” it’s very freeing.
23:36
It actually takes a lot of pressure off you, and you can actually
23:39
then move on to the next step and say, well, why was I wrong?
23:42
Why did the gold not go up?
23:43
Why are the plates still spinning?
23:45
And I think that will help prepare you for the next five or six years.
23:48
So now let’s talk a little bit about the dollar milkshake theory and how it applies to
23:51
gold.
23:52
Well, I think it largely depends on where you’re sitting and in what currency
23:55
you’re denominated.
23:56
You know, if you’re an international person or entity, and you
24:01
are not denominated in dollars– I don’t know if you’re in euros, or you’re yen, or
24:05
you’re yuan, or bolivar, or whatever you are– I think you can probably pretty much
24:10
back up the truck and buy over the next couple of months.
24:13
I think the dollar is going to get a lot, lot stronger.
24:16
But if the dollar gets a lot, lot stronger, that means a lot of
24:18
these other currencies are getting a lot, lot weaker.
24:20
That means gold, in those terms, is probably going to go a lot, lot higher.
24:24
It would not surprise me at all if these other currencies of gold rises 15% to 30% over the
24:30
next 12 to 18 months.
24:32
I think that could easily happen.
24:34
So I think determine where you’re at and which currency you’re denominated before
24:38
you just say, gold is going up or down.
24:40
I think that’s a very important point to make.
24:42
Now, I think it gets a little bit more complicated if you’re a dollar investor.
24:46
I have said for over two years now that I think eventually,
24:49
we’re going to get into a situation where dollars and gold rise together, and
24:52
I still firmly believe that.
24:55
The strength of the dollar is going to cause such chaos in the
24:58
global monetary system that the safe haven that gold has always provided, I think, is
25:01
going to become into higher demand.
25:03
And there will be a point where they rise together.
25:06
Now that said, for those of you that heard me say gold’s going to $5,000 earlier, I
25:10
want you to keep those positive feelings that you had when I said that, because I
25:14
don’t know that it’s going to happen over the next five or six months.
25:17
In fact, I think there’s a good chance that gold goes lower
25:20
in the short term.
25:21
It might not, and if it goes higher, I will embrace the break-out,
25:24
and we’ll be on to probably another five or 10-year bull market in gold.
25:29
But I’m just not sure that it’s going to break out yet.
25:31
We had another great opportunity this spring to break out, and it didn’t happen.
25:35
And I think with the move that the dollar is going to make over the next six to 12 months,
25:39
I think it will be very challenging for gold to break out initially with that.
25:44
And so I think if you are a US investor or a dollarbased
25:49
investor, I’m not saying that you should sell your gold.
25:52
The gold theory is still very much intact, but I’m just not convinced
25:55
it’s going to break out right now.
26:00
So as far as gold and the dollar rising together, I know that seems kind of
26:04
contradictory.
26:05
But at the end of the day, I really don’t think it is.
26:08
They’re both currencies, and they’re both measured against
26:10
all the other currencies in the world.
26:12
And so I think in the same way that the yen and the euro could rise together, dollars
26:16
and gold could rise together against a number of different fiat currencies.
26:20
Again, I don’t think that– I’m not even sure that
26:23
the dollar bulls have a proper appreciation for
26:26
how much damage that the dollar bull market is going to cause.
26:30
Again, the design of the monetary system was just not built for
26:34
a strong dollar.
26:35
And when it gets going and rocking and rolling, it is going to cause all kinds of
26:39
damage.
26:40
And that should be very good for gold.
26:41
When markets start melting down, and when chaos starts to happen, and confidence
26:46
starts to get lost, and you can feel the panic in the streets, that’s typically
26:50
great for gold.
26:52
And so whether or not things panic and break down in the United States,
26:56
if they panic in Europe, or if they panic in
26:58
Africa, or they panic in Asia, that’s a good opportunity to provide a chaos trade, so
27:05
to speak, or a safe haven trade.
27:06
And I think dollars will benefit from that, but gold
27:09
will benefit too.
27:10
And again, we don’t need everybody to sell everything they own and go buy gold.
27:16
The gold market’s very small on a per capita basis.
27:19
We just need the rest of the world to put 1% or 2% of their assets in gold, and
27:23
gold doubles.
27:24
So we don’t need a mass exit out of fiat currency into gold for gold
27:30
to do very well.
27:32
The other reason that gold and the dollar can rise together is that we talked about
27:38
gold being a small market.
27:39
Well, if the dollar is rising a lot– and I mentioned other
27:43
currencies would be going down a lot– if those investors do start seeking out gold,
27:48
if Europeans start buying gold en masse, or the
27:51
Asian continent starts buying gold en masse, that can have dramatic implications
27:56
for supply of gold.
27:58
And so again, we don’t need it to be really big for it to impact.
28:02
And that’s another reason why, even though the dollar may be getting a safe haven
28:04
trade, that gold can get a safe haven trade as well.
28:08
And once we get to a place where the dollar and gold is rising together, I mean then
28:13
it’s just really rock and roll time.
28:14
I mean that’s just where the gold really starts to go
28:16
up.
28:17
And then I think in a couple of years from now, whether it’s 2020 or 2021, after
28:22
the dollar has caused all this damage, the global authorities will have to get together,
28:26
and they will either have to, at that point, weaken the dollar either through QE or
28:32
some type of Plaza Accord, or maybe they introduce a whole new monetary system,
28:36
whether it’s an SDR or whether it’s a combination of a basket of assets.
28:40
I don’t know what it is, but what I know is that the monetary system, as it’s currently
28:44
designed, has a dramatic flaw.
28:46
And that dramatic flaw is about to be thrown a real
28:51
curve ball with the dollar getting stronger.
28:53
And that should be good for the US dollar.
28:55
It should be good for gold, and it should be good for those who are prepared.
29:00
A lot of people say that nobody sees the fact that the dollar has this problem, that
29:06
they have all these liabilities, all these unfunded liabilities, that our trading partners
29:10
are wanting to move away from the dollar.
29:13
I just don’t think that’s the case.
29:16
I think a lot of people see that this is a problem.
29:18
I think a lot of people want to leave the dollar.
29:21
I think there’s a big mistake in saying that this is a small problem that a few
29:25
people have discovered and that they’re going to profit wildly when the dollar gets
29:30
thrown by the wayside.
29:31
I go to meetings all the time.
29:33
I talk with investors all around the world all the time.
29:35
I can’t remember a meeting in the last couple
29:37
of years, where it either wasn’t brought up already or that I didn’t bring it up about
29:43
the dollar and its status in the world, that everybody around the table wasn’t familiar
29:48
with the issue.
29:49
Never once has anybody said, well, what are you talking about, “leaving
29:52
the dollar?”
29:53
Everybody starts nodding their head, and everybody starts putting their
29:55
two cents in.
29:56
I think a lot of people have talked– or I think a lot of people have thought about this.
30:00
I don’t think this is some small issue.
30:02
I don’t think anybody’s come up with a real answer, but I don’t think it’s an issue that
30:05
nobody knows about and nobody discusses.
30:07
Now, even though I don’t think gold has got it wrong over the last five or six years,
30:11
and while I don’t think gold has stopped working, per se, I think gold is doing exactly
30:15
what it has always done.
30:16
Again, I think, as I alluded to earlier, I think we’re the ones that got it wrong.
30:21
Now, why did we get it wrong?
30:22
Well, I think part of it is that a lot of us, me included,
thought that quantitative easing was going to be dramatically inflationary.
I didn’t think that the world could inject $20 trillion
into the global economy and not inflate fixed assets, gold being one of them.
But you know what?
They did.
We got that wrong.

It was inflationary to asset prices.
Real estate went higher.
Equities went higher.
Some commodities went higher, but some commodities
went lower.
In my opinion, all the low rates and the QE ended up being deflationary
to some assets, just as much as it was inflationary to other assets.
And I think keeping rates at the zero bound is overall
deflationary.
31:02
And so the fact that $20 trillion pumped into the economy was going to
31:06
create hyperinflation– it didn’t happen.
31:08
We got that wrong.
31:09
And I think it’s important– I really do think it’s important that we admit that we got that
wrong, because if you just say, “buy gold,” all the time, and you never say that it
could possibly go down, well, then we’re no different than those who say buy equities
all the time, and never buy gold.
I think we’ve got to be very careful that we don’t fall
31:26
into the same hypocritical arguments that the traditional Wall Street does.
31:30
I have a lot of friends in the gold world.
31:33
I have a tremendous amount of respect for them.
31:36
Most of them are my friends.
31:38
If you’re in the gold world, and you’re not my
31:39
friend, I think it’s probably because we didn’t spend too much time together.
31:42
But I do think that we can do ourself a lot of good
31:44
by kind of taking a step back and really trying to understand why gold didn’t do well
31:47
over the last five years.
31:48
Just admit that we got the timing wrong.
31:51
There’s nothing wrong with that, because just because we
31:52
got the last five years wrong, it doesn’t mean that we’re going to get the next five
31:55
years wrong.
31:56
I mean, in fact, I’m pretty sure we’re going to get the next five years right.
31:58
But I think in order– for credibility’s sake or to be
32:02
able to take a step back and be objective and
32:06
try to really understand why gold didn’t break out in dollar terms over the last five
32:10
years, I think it’s important to just acknowledge that we missed something along the
32:13
way.
32:14
Now, somewhere else where I think you can see it is in equities.
32:16
Now, at the beginning of the year, I said I thought that
32:18
equities were going to go higher.
32:20
I thought they might very well have a 5% or 10% correction
32:24
before that happened.
32:25
I said I thought it would be nice if we had it.
32:27
It would be helpful.
32:28
Well, we got it.
32:29
So kind of be careful what you wish for.
32:30
But if you look at equities, both the S&P and the NASDAQ are both in a wedge
32:35
pattern.
32:36
And I think they’re kind of near the bottom of that wedge pattern.
32:38
I’m not saying it’s going to be a straight line, and
32:39
it’s going to be easy, but I think we’re going to move higher to the top of that wedge pattern,
32:43
and I think we’re going to break out of that wedge pattern.
32:44
I think equities are going higher.
32:46
I think the Fed’s going to continue to raise rates, and I think this
32:48
dollar milkshake theory is really going to get
32:50
going.
32:51
So again, I’m really excited about where markets are headed, not because I think
32:54
things are going to be easy.
32:55
I actually think they’re going to be hard.
32:56
I think they’re going to be scary.
32:57
But I think they’re going to be fun, to be honest.
32:59
I think they’re going to present a lot of great opportunities.
33:02
And I think if you have a plan for how to get through it, I think the opportunities
33:05
are actually pretty incredible.
33:08
I think one thing to remember is never be closed off to any ideas.
33:12
I always consider everybody’s arguments that they send back
33:14
against me.
33:15
I’m happy to think about them.
33:17
It doesn’t mean that I’m giving up on my own opinions, but I think one of the
33:20
most important things to do over the next couple of years is keep an open mind.
33:23
I think we’re going to see things happen that
33:25
many people just don’t think can happen.
33:28
And I think that for those who kind of stay nimble and have a plan, there’s going to
33:33
be an opportunity to make some good profits in the years ahead.