MacroVoices #283 Brent Johnson: US Dollar Still Not Crashing

Episode Summary

Executive Summary: In this August 2021 episode, Brent Johnson argues that the dollar’s resilience reflects a relative currency contest, not proof that fiscal and monetary risks are absent. He sees near-term deflationary risks outweighing persistent inflation absent stronger bank lending and wage growth, while emphasizing diversified, patient investing over all-in bets. The hosts examine market conditions and chart potential in commodities, with particular interest in soft commodities on pullbacks.

Main Topics: Dollar resilience and the Dollar Milkshake thesis: Johnson says the dollar should be assessed relative to other fiat currencies, whose governments are also expanding debt and liquidity. He argues that a future global debt or currency crisis could drive liquidity toward the dollar, while acknowledging the theory is uncertain and its timing has been wrong. Inflation versus deflation: Johnson accepts that prices rose but questions whether inflation will persist. He points to supply-chain disruptions, declining commercial and industrial lending, weak wage momentum, and low money velocity as reasons for near-term disinflation or deflation risk; sustained bank-created credit would make continued inflation more plausible. Portfolio construction and risk management: Johnson advocates diversified, customized long-term portfolios rather than concentrating positions around confident macro calls. He recommends patience and disciplined position sizing, reserving more aggressive bets for unusually compelling opportunities. Gold, Treasuries, Bitcoin, and equities: Johnson sees possible further downside or consolidation in gold and Bitcoin, expects Treasury yields could fall further, and anticipates an equity pullback before potentially higher levels over the longer term. He treats these as uncertain scenarios, not guarantees, and rejects an either-or choice between assets such as gold and Bitcoin. Commodity outlook and soft commodities: Johnson is cautious about chasing industrial commodities after sharp rallies but would consider adding agricultural commodities on pullbacks, citing persistent food demand and possible supply constraints. The hosts’ chart review highlights key technical ranges in grains, coffee, cotton, sugar, lumber, and other commodities. Near-term market conditions: The hosts describe equities as in an established but sluggish uptrend, the dollar as consolidating, oil as vulnerable if large inventory draws fail to appear, gold as range-bound near technical resistance, and Treasury yields as trending lower.

Key Arguments: A falling dollar is not inevitable simply because the United States is expanding money and debt: the dollar index measures the dollar against other currencies, and other major economies are pursuing similar policies. Johnson’s Dollar Milkshake thesis holds that global debt stresses could eventually trigger a scramble for liquidity that benefits the dollar because of its reserve-currency role. He stresses that this remains a theory, not a certainty. Government spending can add near-term inflationary pressure, but Johnson argues that sustained inflation also depends on ongoing credit creation. Bank lending creates new money, whereas bond purchases redirect existing funds; he cites falling commercial and industrial loans and weak wage growth as caution signals. Commodity rallies and supply disruptions are evidence of price pressure, but do not by themselves establish persistent economy-wide inflation. Johnson expects some supply-chain problems to ease and warns against extrapolating recent price gains. Portfolio decisions should reflect investors’ objectives and time horizons. Johnson cautions against going all in on a macro narrative, arguing that diversification and measured position sizing preserve flexibility when the outlook is uncertain. Johnson sees possible long-term value in gold, equities, and selected soft commodities, but distinguishes that outlook from a call to buy aggressively at current prices. He favors considering agricultural positions after pullbacks rather than chasing rallies.

Data Points: Dollar index level: About 93, versus about 93 a year earlier - Johnson notes that the dollar remained near the same level despite more than $1.4 trillion in additional U.S. printing and major political and fiscal developments. European Central Bank purchases relative to net Eurozone issuance: 85% in the prior year; projected to exceed 100% in 2021 - Johnson uses this comparison to argue that monetary expansion is not unique to the United States. U.S. crude oil inventories: Build of 3.6 million barrels - The first August 2021 inventory report contradicted forecasts for very large drawdowns. Gasoline inventories: Drawdown of 5.3 million barrels - Reported alongside the crude build; distillate inventories fell by 832,000 barrels. U.S. crude production: 11.2 million barrels per day, unchanged - The hosts’ market wrap cited unchanged U.S. production as oil prices weakened. Forecast oil inventory drawdowns: Up to 20 million barrels per week - Analysts had anticipated exceptionally large August draws; the initial report fell far short of that expectation. U.S. 10-year Treasury yield: Below 1.20% after late-July lows near 1.15% - The hosts and Johnson discuss a downward yield trend and the possibility of yields falling below 1%. Gold price levels: Recent peak near $2,100; around $1,800–$1,840 during the discussion - Johnson sees gold consolidating and considers further downside possible, while viewing a fall to $1,200 or $1,000 as unlikely. Bitcoin price range: About $65,000 at its peak, down to about $30,000, then around $38,000 - Johnson says he had sold portions as Bitcoin rose, remains cautious, and sees regulatory and Tether-related risks. Suggested individual portfolio allocation: About 5% as an example - Johnson argues that a modest allocation to an asset such as silver could still provide meaningful upside exposure without going all in.

Pivotal Quotes: "I call this the dollar milkshake theory. It's not called the dollar milkshake fact. It's not called the dollar milkshake guarantee." — Brent Johnson: He underscores that his forecast of a dollar surge during a global debt or currency crisis is a hypothesis, not a certainty. "You do not have to be a day trader." — Brent Johnson: Johnson urges investors to align portfolio decisions with their goals and time horizons instead of reacting to every market move. "I think people go all in way too much." — Brent Johnson: His central portfolio-management warning is against concentrated bets made amid unusually high uncertainty.

Implications: Investors should distinguish temporary price shocks from durable inflation, track credit and wage trends, and assess currencies comparatively. The episode favors diversified positioning and patient entry points—especially for commodities—over chasing rallies or making all-or-nothing macro bets.