As we head into a new year, there are a lot of questions swirling about money:
Will the dollar's strength vs other world currencies continue into 2025?
And even if so, will it continue to lose purchasing power vs real things?
Will gold continue to be aggressively purchased by the world's central banks? By investors?
Is Bitcoin "winning" the store of value war?
To discuss all these and more, we're fortunate to welcome back to the program Brent Johnson, CEO & Portfolio Manager at Santiago Capital, and developer of the Dollar Milkshake Theory.
Brent is "extra cautious" right now given Wall Street's exuberance. At these high levels of euphoria, he fears the 2025 market could look a lot like 2022’s rough year.
Here are my key takeaways from this interview:
Brent is concerned about the extreme valuation levels and rapid market movements following recent political and economic developments. To mitigate risks, he is reducing equity exposure through options-based hedging rather than outright selling. While already holding sufficient gold, he is open to increasing allocation during a significant price pullback. Additionally, Brent is focusing on U.S. investments, particularly blue-chip equities, while exploring growth opportunities in sectors like uranium, which he expects to play a significant role in the coming years.
Brent reinforced his Dollar Milkshake Theory, which predicts the U.S. dollar will continue to dominate global markets due to its reserve currency status and capital inflows. He anticipates that the U.S. will outperform other economies because of its relative advantages, including its deep financial markets, economic resilience, and strategic geopolitical positioning. However, he warned that a significant and rapid rise in the dollar's value could disrupt global markets, creating potential risks.
The upcoming Trump administration's aggressive economic policies such as tariffs, government spending cuts, and attempts to repatriate manufacturing are likely to cause short-term disruptions. Brent emphasized the need for cautious positioning to navigate potential volatility in 2025, which he compares to the tumultuous economic conditions of 2022. Despite short-term challenges, he sees a potential for long-term economic growth if policy reforms succeed.
Liquidity has been a significant driver of asset prices in recent years, and Brent expects this trend to face headwinds as fiscal and monetary policies shift under the new administration. Reduced liquidity, combined with the corporate debt refinancing wall starting in 2025, could act as a drag on markets. While global liquidity inflows have primarily benefited the U.S., Brent warns of the potential for volatility as liquidity dynamics evolve.
Brent argued that despite the strategic importance of BRICS countries like China, Russia, Brazil, and India, the coalition lacks the unity and infrastructure required to launch a currency capable of challenging the dollar. He highlighted internal conflicts and divergent economic priorities within the BRICS nations. Brent also suggested that the U.S. could use geopolitical strategies, such as forming a stronger pan-American economic bloc, to counteract such challenges.
While Brent does not foresee a catastrophic recession, he predicts periods of economic difficulty and volatility. He believes the economy may skirt the technical definition of a recession but acknowledges that asset prices may experience downturns. However, he is optimistic about eventual recovery, driven by structural policy changes and the inherent resilience of the U.S. economy.
Brent emphasized the importance of flexibility and adaptability in portfolio management. He advised against being overly committed to any single investment philosophy, such as gold, Bitcoin, or fiat currencies, and instead advocated for situational awareness. By understanding the interplay between policy decisions and market forces, investors can better navigate the complexities of both short-term volatility and long-term trends.
For everyday investors, Brent stressed the value of diversification, staying informed, and not being swayed by recent short-term performance of market "gurus." He encouraged investors to honestly assess their strengths and weaknesses in financial management and to seek professional advice when necessary. Partnering with skilled advisors can help ensure disciplined portfolio management, reduce risks, and provide access to strategies like hedging for downside protection.
For the full interview with Brent Johnson, watch the video below:
___________________
For more deep-dive macro interviews like the one above, sign up for our free newsletter at: https://thoughtfulmoney.
To schedule a free consultation with one of Thoughtful Money's recommended financial advisors, fill out the short form at: https://thoughtfulmoney.
