MacroVoices #451 Brent Johnson: Macro Drivers of UST’s, PM’s & The Role of The BRICS

Episode Summary

Executive Summary: Macro Voices episode 451 features Brent Johnson arguing that BRICS is not a near-term threat to dollar dominance, while foreign Treasury holdings remain at record highs even as China/Japan holdings trend lower. He sees strong-dollar volatility, bullish gold with near-term caution, selective opportunity in silver, resilient U.S. equities but vulnerable to a tactical drawdown, and rising Treasury yields as a structural macro force.

Main Topics: BRICS and the durability of U.S. dollar dominance (Priority: 5/5): Johnson argues BRICS nations are important and openly anti-dollar, but their ability to create a functioning alternative currency/payments system is limited. He says political messaging does not equal execution and any transition would be volatile, likely boosting the dollar first. Foreign Treasury holdings and the role of offshore vehicles (Priority: 5/5): He disputes the idea that foreigners are abandoning Treasuries, noting total foreign holdings are at all-time highs. He explains that large Cayman, Luxembourg, Belgium, and Ireland holdings often reflect offshore investment vehicles used by global investors, not just sovereign buying. China, Japan, and valuation vs. actual selling (Priority: 5/5): Johnson emphasizes that reported foreign holdings data reflect market value changes, not only transactions. He argues much of the decline in China’s reported Treasury holdings since 2021 is due to rising yields and falling bond prices, though some real selling likely occurred as well. Gold: structurally bullish but short-term stretched (Priority: 5/5): Johnson remains long-term bullish on gold as insurance and a beneficiary of dollar strength/market chaos, but says the market is overbought after a strong run. He sees room for a pullback despite potential upside toward $3,000-$3,500 over the next year. Silver, precious metals, and speculative positioning (Priority: 4/5): Silver has broken out, but Johnson wants a pullback and base near $30 before getting more aggressive. In the post-game, Patrick adds that gold, silver, platinum, and palladium are all improving technically, though gold is extended and uranium equities are volatile. Rates, equities, and the macro backdrop (Priority: 4/5): Johnson expects U.S. yields to remain elevated or move higher absent a major risk-off shock, supporting dollar strength. He stays long equities over the medium term but expects possible sharp downside volatility over the next 2-3 months due to elections, geopolitics, and earnings. Oil and commodities (Priority: 4/5): Johnson sees oil likely languishing near current levels or drifting lower unless Middle East risk escalates. The post-game notes record U.S. crude production hitting 13.5 million bpd, challenging prior claims that pre-pandemic highs could not be surpassed. Broader commodities remain range-bound over decades.

Key Arguments: BRICS is politically meaningful but operationally far from building a credible alternative to the dollar; businesses, not politicians, ultimately determine currency usage. Global foreign Treasury ownership is not collapsing; the headline decline in some countries is offset by offshore vehicles and other foreign capital flows, pushing total foreign holdings to record highs. A large part of the reported decline in Chinese Treasury holdings reflects mark-to-market losses from rising yields, not just outright liquidation. Strong-dollar regimes tend to create macro stress and crisis conditions; Johnson’s core view is that the dollar can rise even while gold rises too, because gold benefits from instability. Gold remains a strategic insurance asset, but after a large year-to-date rally and a heavy commercial short/speculative long setup, it is vulnerable to a mean-reverting pullback. Silver looks like a better tactical setup only if it can consolidate around $30 after breaking out; chasing it immediately is less attractive. U.S. equities can continue higher over the next couple of years, but near-term fragility is elevated due to election risk, geopolitics, and earnings season. U.S. Treasury yields have likely entered a higher-rate regime; absent a severe risk-off event, rates should stay high or drift higher, supporting dollar strength. Oil has found some support, but without geopolitical escalation it likely remains capped or softens further. The U.S. shale patch remains stronger than many analysts expected, as shown by record production above prior pre-pandemic levels.

Data Points: Macro Voices episode: 451 - Episode identification Production date: October 24, 2024 - Episode release timing December S&P 500 futures: down 83 bps to 5,838 - Macro scoreboard week-over-week close of Oct. 23, 2024 U.S. dollar index (DXY): up 87 bps to 104.42 - Macro scoreboard and post-game discussion of dollar strength December WTI crude oil: up 54 bps to 70.77 - Macro scoreboard December gold: up 219 bps to 2,750 - Macro scoreboard; used to discuss overextension Copper: down 92 bps to 4.33 - Macro scoreboard Uranium: down 84 bps to 82.55 - Macro scoreboard U.S. 10-year Treasury yield: up 16 bps to 4.20% - Macro scoreboard Foreign holdings of U.S. Treasuries: at an all-time high - Brent Johnson’s chart discussion on foreign demand Gold year-to-date performance: about 35% up - Johnson’s near-term caution despite long-term bullishness Commercial short position in gold: near second-largest on record - Johnson’s cautionary COT analysis U.S. crude oil production: 13.5 million barrels per day - Patrick’s post-game discussion of EIA data; new record above prior pre-pandemic peak Prior production record: about 13.3 million barrels per day - Benchmark that had been widely believed unbreachable EIA crude inventory build: 5.5 million barrels - Post-game oil inventory report Gasoline inventory build: 878,000 barrels - Post-game oil inventory report Distillate inventory draw: 1.1 million barrels - Post-game oil inventory report Net petroleum build: 5.3 million barrels - Post-game oil inventory report China Treasury holdings peak: around 2013 - Discussed as the approximate high point before decline Gold cup-and-handle target: 2,724-2,725 - Both Johnson and Patrick note gold has reached/exceeded the measured target Silver breakout zone: around 30-31 - Johnson wants a base here before adding Potential silver upside: 35-37 - Patrick’s post-game technical outlook Potential gold upside: 3,000-3,500 - Johnson’s possible next-year range if the trend extends 10-year note futures key area: around 111-113 - Patrick’s technical discussion of Treasury futures Treasury yield reaction since Fed pivot: about 65 bps rise - Macro scoreboard noting yields higher after the Fed pivot

Pivotal Quotes: "I think people get a little overzealous in the rise of the BRICS, mainly because I think many people want to see the fall of the American Empire." — Brent Johnson: On BRICS hype and why he is skeptical of claims that they can quickly displace the dollar "If you are a foreigner who wants to buy U.S. Treasuries, you have to do it in a vehicle that doesn't get you taxed." — Brent Johnson: Explaining why small jurisdictions like Cayman, Belgium, and Luxembourg appear as large Treasury holders "There is nothing more long-term bullish for gold than a strong dollar." — Brent Johnson: Core thesis linking dollar strength, global stress, and gold demand

Implications: Listeners should separate political narratives from market mechanics: the dollar’s reserve role remains durable, gold is still a strategic hedge but looks stretched tactically, and Treasury/FX data need careful interpretation. Near-term volatility risk is elevated across equities, rates, and commodities.