MacroVoices #391 Brent Johnson: The Dollar Is Not Done

Episode Summary

Executive Summary: Macro Voices episode 391 centers on Brent Johnson’s bullish case for continued U.S. dollar strength amid rising geopolitical risk, BRICS de-dollarization efforts, and global balance-sheet stress. Johnson argues that de-dollarization would require deleveraging a massive offshore dollar system, likely producing dollar strength before any long-term decline. The post-game covers crude oil, equity hedging, uranium, gold, and Treasuries, with a cautious stance on equities and constructive views on commodity exposures and tail-risk hedges.

Main Topics: U.S. Dollar Outlook and the Dollar Milkshake / Eurodollar Framework (Priority: 5/5): Brent Johnson argues the dollar’s bull market is not over and that any challenge to dollar hegemony could initially strengthen the dollar because the world’s offshore dollar debt must be deleveraged first. Geopolitics, Great-Power Conflict, and Reserve-Currency Competition (Priority: 5/5): The discussion frames Ukraine, Russia, China, and BRICS as part of a broader contest over global financial and military hegemony, implying more volatility and hostility ahead. BRICS De-Dollarization: Limits and Likely U.S. Response (Priority: 4/5): Johnson says BRICS cannot be ignored, but their ability to create a functional alternative currency system is limited, and any real progress would likely trigger diplomatic pressure and sanctions from the U.S. Euro and Yen as Key Dollar Drivers (Priority: 5/5): Johnson sees the euro and especially the yen as critical stress points. Europe faces energy and banking vulnerabilities, while Japan’s yield curve control and negative-rate legacy make the yen a central global liquidity variable. Gold, Fiat Debasement, and Real Rates (Priority: 4/5): Johnson is not short gold despite dollar strength, arguing gold can rise alongside the dollar when all fiat currencies are being debased; he views gold as a strategic portfolio allocation rather than a tactical short. Post-Game Market Setup: Equities, Options Hedging, Commodities, Uranium, and Bonds (Priority: 4/5): Patrick Serezna argues equities may be in a topping process and discusses cheap left-tail hedges, while expressing constructive views on uranium, gold, crude, soft commodities, and the possibility that Treasury yields have made a major low.

Key Arguments: A BRICS currency challenge would likely trigger diplomatic pressure and sanctions, not passive acceptance by the U.S. De-dollarization is effectively deleveraging because offshore dollar liabilities must be unwound; that process tends to make the dollar stronger, not weaker, at least initially. The offshore eurodollar system means the world owes far more dollar debt than many investors realize, creating structural demand for dollars in stress events. The euro is vulnerable because European growth is weaker and the ECB’s tightening is constrained by banking and sovereign-bond fragility. The yen is central because Japan must choose between defending its bond market or its currency; either choice can destabilize global liquidity. A stronger dollar has historically coincided with global crises and commodity weakness, so dollar appreciation is materially important beyond FX traders. Gold may rise with the dollar if all fiat currencies are being debased; gold is better treated as strategic insurance than as a simple anti-dollar trade. Equity markets may be in a topping process, but like 2005-2007, they can remain elevated and make new highs even as underlying stress builds. Tail-risk hedges are unusually cheap on a volatility basis, making puts and collars attractive for investors with concentrated risk. Uranium equities remain constructive, but hedging via broad-market or sector-specific options may be prudent because a liquidity event could hit juniors hard. Soft commodities such as corn, wheat, and coffee look attractive due to depressed sentiment, weather risks, El Niño, and supply disruptions.

Data Points: Macro Voices episode: 391 - Episode identifier for the show Release date: August 31, 2023 - Episode production date SP 500 futures move: +235 bps - Week-over-week move cited in the scoreboard SP 500 futures level: 4524 - Close as of Wednesday, Aug. 30, 2023 DXY move: -26 bps - Week-over-week change cited in scoreboard U.S. dollar index level: 103.20 - Close as of Wednesday, Aug. 30, 2023 WTI crude move: +283 points - Week-over-week move cited in scoreboard WTI crude level: 81.63 - October WTI crude contract close Gold move: +233 bps - Week-over-week move cited in scoreboard Gold price: 1973 - December gold contract close Copper move: +492 bps - Week-over-week move cited in scoreboard Copper price: 3.84 - Copper contract close Uranium move: +402 bps - Week-over-week move cited in scoreboard Uranium price: 59.45 - Uranium contract close U.S. 10-year yield move: -13 bps - Week-over-week change cited in scoreboard U.S. 10-year yield level: 4.12% - Close as of Wednesday, Aug. 30, 2023 Offshore USD debt: Over $30 trillion - Johnson’s estimate of non-U.S. dollar liabilities owed outside the United States BIS off-balance-sheet USD debt estimate: Closer to $80 trillion - Johnson cites BIS estimate including off-balance-sheet exposure U.S. dollar high last year: 114 to almost 115 - DXY move after the prior interview DXY low during pullback: 98 to 99 - Approximate trough after the dollar selloff Potential DXY upside target: 114 and through it - Johnson’s medium-to-long-term forecast Gold 2022 support: 1700 - Johnson referenced this as a level gold needed to hold, which it did Crude oil production: 12.8 million barrels/day - EIA data cited in post-game as a new post-COVID high Cushing inventory draw: 1.5 million barrels - EIA inventory data Total crude inventory draw: 10.6 million barrels - EIA inventory data Gasoline inventory draw: 214,000 barrels - EIA inventory data Distillate inventory build: 1.2 million barrels - EIA inventory data SP500 short-term hedge cost: Under 0.5% of notional - Example of a 5% downside trigger and 20% protection for the rest of the year SP500 one-year hedge cost: Over 2% of notional - Example of a 5% downside trigger and 25% protection SP500 collar example: About -20 SP points debit - Rest-of-year collar with 5,000 upside and 4,000 downside bounds SP500 one-year collar example: +25 SP points credit - Same collar structure out to next August

Pivotal Quotes: "The dollar is the thing to focus on." — Eric Townsend: Eric frames the interview’s core macro thesis at the beginning of the conversation "De-dollarized. Dedollarization is the equivalent of deleveraging." — Brent Johnson: Johnson explains why reducing dollar usage could initially strengthen the dollar through balance-sheet contraction "I think we are kind of at a point where everybody's starting to realize that these countries around the world, all of them, have kind of gotten over their skis." — Brent Johnson: Johnson’s broader macro view that governments have exhausted policy room and fiat debasement is broadly underway

Implications: Listeners should expect continued FX, commodity, and geopolitical volatility, with dollar strength potentially persisting during crises. Tail-risk hedges remain relatively cheap, while commodity exposures—especially uranium and selected softs—may warrant accumulation with disciplined risk management.