Navigating Forex and Macro with Brent Johnson, CEO of Santiago Capital

[00:00:00.07] - Speaker 1
Sam.

[00:00:52.19] - Speaker 2
Good afternoon guys. Welcome to this new session. Very, very excited for today because we have some very special guests. So on the mentor key side we have Tim, Tim works with us and I'll let you introduce yourself Tim as well for our macro coverage. And then we have Jay Mitro that you've been with us for a couple of sessions. Those were awesome. So I'm glad to have you back. And then we have Brent from Santiago Capital. Welcome nice to have you as well. Before we go into the webinar today, we're going to talk about forex macro, about the importance of the dollar the But I would really like you guys to introduce yourself first for those who don't know you and then we can stop. Maybe we start from your team and then we go to Jay and Brent.

[00:01:37.05] - Speaker 3
Yeah, yeah, sure, yeah. Welcome ladies and gentlemen to this little special session over here. It's a pleasure to be online with you guys here from Brent Santiago Capital. And Jay, highly appreciate your content Since I think 2018 in the German yeah let's call it finance space. Pretty cool to see. I was meant to queue like around 2 years try to covering macro topics over there and pitched you one or the other trade to the community. And yeah from my side I trade mostly bonds, rates, a little bit of commodities has changed. Traded a lot yes, the last years but yeah now I am more in the bonds and rate space and yeah, happy to be here today and let's hope we have a cool conversation together.

[00:02:33.14] - Speaker 2
I don't know if Jay, if you want to go next.

[00:02:36.08] - Speaker 1
Sure, sure. My name is Jay Medro. Thanks for having me again. Really appreciate the opportunity to meet you face to face.

[00:02:42.20] - Speaker 4
Brent.

[00:02:43.23] - Speaker 1
Tim, see a lot of your work online Brent, so thank you for that. I'm happy to go into the milkshake theory with the founder today. Super excited about. I'm ex Lehman Brothers Nomura Associate General it was always my dream to work on Wall street and I actually made it and I traded my first 50 million bond on 12-06-2008. And then I often laugh and I say what's the mathematical probability that I finally make it to the tier one was either Goldman or Lehman and then the bank dies on me, you know, three and a half years. So the mathematical probability goes towards zero and was a mathematical probability for all of us to find each other here today during this webinar it probably also goes towards zero, you know, after a pandemic and now with Trump 2.0, I mean the markets keep changing and we have a saying at our company that is adapt or die. So it's a new market, it's very different. There's a lot of math involved these days. There's a lot of algorithms, there's feedback loops, which is why I appreciate your work that some of the inner market correlations you're actually putting on screen, so to speak, for the retail audience.

[00:03:56.20] - Speaker 1
Our job is to explain to them what they're actually looking at in a way, you know, because at the end of the day it's still information asymmetry. We look at a lot of data and we look at a lot of flows and we have a lot of experience in putting that macro data together. And for me it starts at the macro level and then down to the micro. Other people work the other way around. Super interested to hear and see how you're going about it, Brent, and looking forward to a very, very interesting conversation today. So let's go.

[00:04:27.15] - Speaker 4
Sure. Well, thanks for having me guys. I'm, I'm Brent Johnson. I've got a firm called Santiago capital which is a wealth management firm and I specialize in working with, you know, individuals and families. I've been doing this for about 25 years now. I started in late 99 with a firm called Donaldson, Lufkin and Genret. About a year later, Credit suisse bought us kind of at the height of the dot com boom. And so, and then I was with them, you know, through the financial crisis into early 2009. And I guess, you know, I've often told people I got to where I always wanted to be and then decided I didn't like the view. You know, I'd always dreamed of working on Wall street, you know, similar to you, and took me a long time to figure out how to get there. But I finally got there and I was there for about 10 years and you know, at the end of the day I just did not want to be part of a big wall street firm anymore. I felt like there were a lot of conflicting interests between what was the best thing for the firm and what was the best thing for my clients.

[00:05:30.05] - Speaker 4
So I left there, joined a friend of mine who had his own independent firm and was there for about 10 years and along the way set up Santiago capital. And so for the last six years I've just been Santiago capital, which, which again is a we management firm, you know, focused primarily or, or most of my clients are U. S based. I've got a handful that are in Asia and Europe and I really take a top down view. I'm, I'm more of a big Picture guy. I'm much more likely to say buy the S P500 than I am to say buy, you know, Netflix or Coca Cola or whatever it is. It's not that we don't own individual positions, but I, I, I'm much more focused on asset classes classes than I am on individual positions. And I think we're in an environment where macro is going to drive everything for the next, you know, call it four or five years. It's not that I, I, I'm not going to go on record and say fundamentals don't matter because they always matter, but I think they probably take a secondary place to kind of macro factors, at least for the next few years.

[00:06:37.28] - Speaker 2
That's awesome.

[00:06:38.17] - Speaker 1
Yeah.

[00:06:38.24] - Speaker 2
Thank you. Thank you for the introduction, guys. So I think we're going to go into. So the goal of this webinar is to highlight some, some insights on the importance of the dollar. So the question would be for you, Brent, and then maybe for Jay. So, like, for those who are not really familiar, can you explain first what the milkshake theory is and why is the dollar so important globally and across our economy?

[00:07:04.05] - Speaker 4
Yeah, I think I, I think I'll take those in reverse, if you don't mind. I mean, in simple, really simple terms, the reason that the dollar is so important is because the dollar is what underlies the entire global economy. Now, sure, there are individual pockets where maybe the dollar is not used, but on the global stage, the dollar is, is the global currency. So it would be kind of like asking, you know, Olympic swimmers, why is water so important? I mean, it's just, it's the environment in which you operate. And I think in many cases, if you were to go back over the last 50 years and look at every crisis that happened or big drawdown, whether it's regional or global, almost all of those happen at a time when one currency is moving dramatically versus another, whether it's a short squeeze, whether it's a carry trade gone wrong, whatever it is, fiat versus fiat does matter, and it bleeds into asset prices and asset classes all around the world. So it's not that you have to focus on the dollar every day, but I think it's really hard to understand what's going on in the world if you don't at least have some idea what's going on with the dollar.

[00:08:14.09] - Speaker 4
So I don't think it can be ignored. And the milkshake theory really came about as a result of the fact that I thought that we were entering a time where the debts in the world had gotten to a certain a size that was big enough that it was going to start to cause problems globally. At the same time I thought the debts had gotten big enough that interest rates were going to start reflecting all of the debt in the world and they would start rising rather than falling. And I thought that would have several knock on effects. The biggest, which I thought would happen would be a currency crisis. Now the currency crisis did not happen so I got that wrong. But the way the asset classes reacted to the dollar going well so, and I thought the dollar would go higher as a result of all of these things. And so while the currency crisis didn't happen, the dollar did go higher. There was a lot of volatility in asset classes. Asset classes in general went the direction that I thought they would go. But we just did not have the full on crisis.

[00:09:26.17] - Speaker 4
We had, we had several mini crises and lots of, you know, periods of volatility. But so far the can has been kicked down the road. And so, you know, the world is still operating under the same system that it's been operating under for the last 50, 60 years. I think there's a lot of people that now can kind of feel or at least see that perhaps that's changing and I think that's going to provide a lot of opportunities in the years ahead. The name came from the fact that my work suggested to me that when you enter a crisis, the dollar, for various reasons, some of them deserved, some of them undeserved, is the currency to which the rest of the world flocks and capital will flow to the dollar. And so I said the, you know, the US would suck up the capital from the rest of the world. And again, if you look at asset flows and fund flows over the last five or six years, there's no question that global capital has flowed to the United States. Now year to date that's changed a little bit. So that's the big question. Is it over?

[00:10:29.26] - Speaker 4
You know, is, or, or not? And, and that's where we're at today.

[00:10:36.03] - Speaker 1
Makes sense. That's actually an interesting point that you're making Brent, because if you look at the tick long term perch data that came out last week, we were at 259.4 billion. So that's foreign money flowing into, into part of the US assets that you're describing. And the data is collected by the Department of the treasury. And this is the second highest we've ever seen the data going back to beginning of 2000. I remember when I went to business school they taught us that Or I left with the impression that even the central bank has a balance sheet, that it can blow up without consequences. And through the global financial crisis, I had to learn the difference between endogenous and exogenous money. Right. So the way that I was taught in business school that reserves are driving credit creation is the wrong way around. And I think it was the bank of England in 2014, they acknowledged that for the first or second time in a paper. And the bank of International Settlements is running on that model these days. So the models have completely changed. What I was taught in business school is not how the world is running.

[00:11:48.03] - Speaker 1
That's why I'm so interested in your milkshake theory. What you're observing is that dollar coming back and what the talk of the town under Trump 2.0 right now is. Or some of the narrative that we're observing is that this system is changing. You know, and there's a lot of clickbait and headline pushing. The brics coming out with their own way of dealing in oil, and I think it is Chinese denominated currency. But it's not what we're seeing in the data yet that this is any significant change. And in my opinion, there's various factors that speak for the dollar, and one of them being the depth and the liquidity, especially of the bond market, which is much, much larger than the equity market. And more important, in my opinion, and there's a picking order, a hierarchy on a trading floor, so to speak, who are the smartest people on the floor. And then it goes down. And I want to insult anybody, but, you know, the common saying is that the bond traders are the smartest and then after that is the derivatives traders and equities is. And that you learn in business school, as well as the Greater Fool's Theorem.

[00:12:55.16] - Speaker 1
So I'm very much a proponent of. You were saying as long as you got some money invested in the S&P 500, you'll be doing well. It's only quite scary if you see the Magnificent Seven driving most of that growth and taking the largest share of this development currently. But I'm mixing a lot right now. I'm just saying it was interesting for me to observe that some of the models that I was taught are obviously not how the world is actually working. And. And maybe we can use this to allude that fact a little bit. And the strongest straw wins, so to speak. Fury is right along that alley right now. And like I said, the data is not proving yet that that system is changing. There's a lot of narrative about that. But the data is not there yet. How do you see it?

[00:13:40.17] - Speaker 4
Well, so I think your last point is probably the most important thing for anyone listening, to take away from this is listen. There is a lot of narrative and there's a lot of desire for de dollarization, for a new system, for a parallel system, for the way for the rest of the world to kind of get out from underneath the hegemonic influence of the United States. I don't deny that at all. But there's a much bigger difference between narrative and reality. And the reality is, despite all the efforts, there hasn't been a whole lot of de dollarization going on. The second point I would make is that because of the design of the system, liquidity, money, however you want to define the dollar, euro, yen, the way liquidity is added is by adding more debt because money is loaned into existence in our, in our, in our current system. And so if, when I bring this up because if we were to rewind three years or four years and we're back in late 21 or middle of 2022 and we're in the height of QE and you know, in simplified terms, governments around the world are printing money, right?

[00:14:54.28] - Speaker 4
And no, no one more so than the Fed. But that money that's being created, that liquidity that's being created, it's being lent into existence. So while in the short term it provides liquidity and the dollar falls because there's plenty of supply, it also creates medium and long term demand because eventually those loans are going to come due. And when those loans come due, there's demand for the dollar to get the dollar to pay off of that credit. And that's where I think many people kind of misunderstand the direction the dollar would take if we were having true de dollarization. And what I mean by that is de dollarization to get away from the dollar, to decrease demand for the dollar that's deleveraging, you have to pay off all that debt and then move on to something else. But in a deleveraging, growth tends to slow, the underlying currency tends to rise. That's what a deleveraging is right Now Ray Dalio has talked about a beautiful deleveraging where it happens kind of slowly over time. I think that's about as big of a myth as central bank independence, personally. Typically the way deleveraging happens is wild and violent, right?

[00:16:14.21] - Speaker 4
But that's how deleveraging happens is it's typically not pretty. And in that environment the dollar would rise. It's hard to imagine a scenario where the dollar is falling and there's deleveraging, I just don't see how that happens because the liquidity, you know, to provide the dollar to fall increases the amount of debt that, that is leveraging, it's not deleveraging. So I, I feel like the road to de dollarization is the dollar going higher. And that's why I've said several times that if the dollar is going to die, and I some listen, someday it will. We, we know this from history. Currencies don't last forever. But in my opinion, the road to de dollarization is through a higher dollar, not through a lower dollar. So if the dollar's, you know, the dollar's down this year and if it continues to go lower, I don't think that's a problem. I think that's the personification or the extenuation of the current system, you know, and it's only when the dollar goes higher that things start to break and a new system gets put in place. And we started to see shades of that in 2022, but again, they were able to kick the can down the road.

[00:17:23.26] - Speaker 4
And here we are three years later and, you know, the system's still running.

[00:17:27.09] - Speaker 1
It goes back to What Connolly said 1971, the Treasury Secretary under Nixon, and he said, our dollar, your problem. And the world was shocked. But that's what you're describing. In a way, if we really see the dollar strength to an extent where the rest of the world is crumbling under it, then maybe. Sorry for that, but I live in the tropics, so I don't know if you can hear the thunder or not. You know that as well. We have rainy season.

[00:17:58.01] - Speaker 4
It's incredible how well that, that, that, that comment has held up. And I think it's as appropriate today as it was 50 years ago. And let me, I don't, I don't mean to, to dominate the conversation here, but there's a point I want to make because I think it will help, you know, for the rest of the discussion. Part of the reason that the dollar is so important, and this was one of the questions that was asked initially, is because the whole world uses dollars to operate on the global stage, but the whole world also uses their local currency for local business. Right. The reason that's a problem or the reason it's an issue, and the reason it comes back to your comment, our currency, your problem is because the design of the system and because every country has the same system. There's no other country like running a different type of system because all money is loaned into existence. It's kind of the effect of a carry trade. You borrow money and you invest it in an enterprise or some kind of a, an endeavor that you think is going to make a higher return than the cost of capital.

[00:19:07.08] - Speaker 4
Right. Well, that, that works great for the United States because they only have to deal with a carry trade in one currency, the US Dollar, because it's both the trade, it's both the currency they use on the global stage and the currency they use locally. But that's not the case for almost every other country. And so every other country is dealing with two carry trades at the same time and one of them is always going against them. So what I mean by that, let's just use Europe as an example. You know, they, their, their banking system has a lot of US dollar credit in it, but it also has a lot of euro credit in it. And so some people have borrowed in dollars and some people have borrowed in euros. When the dollar is going up a lot, that's tough for them because now they have to service a currency that is now stronger. Because if the dollar rises 10% now, the cost of funding is now 10% higher than it was. And not only that, but the debt you have to pay off is 10% stronger. So that's going against them. We saw that very much in 2022.

[00:20:14.20] - Speaker 4
The flip side is kind of what we're seeing now. The dollar's down quite a bit this year. 10, 10, 10 this year or something like that. And as a result, because currencies are a zero sum game, the euro's up 10%. Reuters just put out a, an article today talking about how Europe is struggling with the effects of a strong Euro on their exports. Right. So now their euro carry trade is under pressure even though the dollar carry trade has eased off. And I feel like there's this band and I don't know exactly where the band is, let's call it between 90 and 105 on the DXY, where every, you know, it bounces back and forth in between there and the world kind of operates okay, it's no big deal. But if the dollar gets too strong, you know, above 105, it starts to break things. And if the dollar gets two weeks below 90, it starts to break things because the rest of the world has to deal with either a strong dollar or strong local currency. And so that, that, that just comes back to our currency. You know your problem? The US doesn't have to worry about that, but every other country does.

[00:21:28.05] - Speaker 1
Yeah and the question is, what would it take for this current established system to change? And I saw a real ones and I don't know if you guys have ever seen it. Just a really short reel that's that had someone ask into the camera what really backs the US dollar and then it flipped and you saw a Navy fleet, you know, the U S fleet shipping out. And I think the military and geopolitical power is something that a lot. And I'm an ex soldier, so before I was an investment maker, eight years, six years in the US army, two years in the German army. So I was like that's actually a very good point. And when you look at geopolitics these days and what the current administration is enforcing, willingly or not willingly, I'm not intelligent enough to make that call. I don't know if these people are playing 4D chess as sometimes it said or not. But it's quite interesting that there's a lot of volatility that's being stirred up in the market or if we look at today's market, how subdued the volatility is while we're at all time highs or yesterday making all time highs in the S P500 while the Vix is rising.

[00:22:37.29] - Speaker 1
So again a lot of moving shifts, bits and pieces. And when we go from macro like you're doing or we are doing as well, all the way down to micro, we're using different dollar models at a given mode in time, right? So at times we look at the dollar smile and at times the market is playing the dollar smile. You know, most of the time currently not. I look at a model that Morgan Stanley developed where you look at the real yields and the chain, the rate of change of real yields versus the rate of change of just the break evens.

[00:23:09.25] - Speaker 4
Right.

[00:23:10.14] - Speaker 1
A very, very interesting model in, in. In our work daily. The most important thing for me personally is do we get the dollar the direction of the dollar? Right. And I agree with you, we are in bands usually we are in a sinus curve when it comes to at least G6 to G8 currencies. And what would it take in your opinion? Also alluding and thinking about depth of market liquidity, history, faith in the institutions, military might. What would have to happen in your opinion, Brent, to really have this system, the current system change, not only like you're alluding to the dollar needs to break something by rising above 105 in a. But is there, and that's my question, that's what I'm observing. Is there an alternative system available to the world to sort of like switch over to. And I don't see that at the moment, but I'm interested in your view or yours, Tim.

[00:24:09.14] - Speaker 4
Yeah, you know, I think, and I hate saying it, but I, I don't think the system changes without, you know, military conflict. I think that's ultimately where it would go. So. So going back to your point about the meme, you know, what really backs the dollar and then the cutaway to the U.S. military. Yeah, I think there is currently a little bit of a misunderstanding with that because I don't think currently the US military backs the dollar, but I would argue that if it had to, then it would. So what I mean by that is in many ways the market does the US military's work for them because there's so much US dollar debt in the world because the rest of the world adopted the euro dollar as its money of choice 50 years ago. They built this euro dollar prison out of a money that they can no longer control. And it kind of got out of hand and got away from them. And so now anytime anybody tries to leave that euro dollar system, the market punishes them either with higher cost of capital or with sanctions or with some kind of, you know, a currency collapse or currency crisis.

[00:25:22.07] - Speaker 4
You can go around the world time and time again where someone has tried to leave the system or tried to do something their own way and the market punishes them. But I am not going to sit here and pretend that if the US had to enforce the US dollar as the global reserve currency and it chose to do so, I'm sorry, it would do so with the military, if that's what it took, then I absolutely think that they would use the dollar or I mean use the military to back it up. And this is where I kind of think that we're getting into this time period where my friend Michael every calls it statecraft. I just kind of call it a unification of tools or strategies where I don't think decisions are purely being made on economics anymore. I think in many ways for the last, certainly for my career, which is now 25 years, and I would argue probably even for 40 or almost 50 years for the most part, if you lived in the west and worked in developed markets, you could analyze a potential investment or an economic project based on the numbers.

[00:26:35.26] - Speaker 4
And if the numbers penciled out, then it would probably work out. I'm not sure that's the case anymore. Or what I mean by that is I don't think projects or treaties or endeavors will be undertaken at the national level just based on the numbers anymore. I think national interests are going to trump whether or not something pencils out on a spreadsheet. And perhaps certain things will look stupid from an economic perspective or a strategic perspective, but they may look really smart from, from, you know, a national interest perspective or, or national security perspective or an alliance perspective. And, and I think this aligns with Trump's, you know, America first policy and not just his America first policy of stuff he has control over, but he wants the State Department to have the America first, you know, idea. He wants social programs to have America first goal. He wants, you know, monetary policy to have America first goal ever, you know, everything he wants moving towards America first. And listen, if it, if, if it works out for the rest of the world, that's great, but that's not our goal. Our goal is America first. And I think in many cases for the last, you know, couple decades, you know, perhaps the State Department was doing one thing, the intelligence agency was doing another thing.

[00:28:06.02] - Speaker 4
The military had its own views and the commerce department had its own views. And I, I think there's this unification, centralization of power, however you want to describe that. I, I think that, you know, pardon the pun, in many way trumps everything.

[00:28:21.08] - Speaker 1
Else goes all the way up to the Supreme Court right now, which, yeah, I see that development that you're describing as well, and we'll have to see how it pans out. Obviously, all of us, though, currently the market is not playing that. It's losing trust in the U. S. System. I sometimes lose my mind trading that crap, you know, when it's headline driven and it's like one minute this, eight minutes that, then they come up with the taco trade and new nomenclatures. We love doing that crap on Wall Street. But, yeah, I hear you. Interesting.

[00:28:55.16] - Speaker 4
Yeah, yeah. Let me, let me just make one point real quick. And then I want to make sure I say this without, without forgetting to say it in my experience, especially because I, I deal with a lot of retail investors and I go to a lot of conferences and I speak with individual investors. I don't know that it's the same way institutionally or not. My guess is that it probably is, but I don't know for sure. But when I speak to people, I speak to a lot of people who say, well, it shouldn't be this way, or this isn't the right thing to do, or this isn't, this is going to hurt us in the long term. And it's not that I disagree with any of that stuff in many Cases. I agree, but I, I guess my point would be is I think many times people will make an investment decision based on the way they think things should be or the way they want things to be or the way they want their leaders to act rather than just being, you know, hardcore, you know, mercenary about and say, this is actually the way it is.

[00:29:58.05] - Speaker 4
This is actually what's going to happen. And I think we're going to get back into a time period and perhaps we're already there where power is more important than anything else and you know, might makes right, so to speak. Now again, I don't really like this. I'd be perfectly happy if we don't go back into that environment, but I just think that's where we're headed.

[00:30:19.22] - Speaker 1
Well, I have a lot of moving pieces at the same time right now we have that what you're describing. And on the other hand we have technology that's advancing so rapidly in the form of AI and significant investments into that space that will have lasting impact on us society, humans, who knows, you know, unfortunately, and maybe you remember Brent, but there was a professor and it was, it was like an interview years ago. I saw on real vision that where they talked about it only occurred so many times in the history of humankind that the number two superpower was approaching the level of the number one superpower. And in most of the cases that didn't end without military conflict. I forgot what the professor's name was or his work or the book he's.

[00:31:09.16] - Speaker 4
From, he's from Har. I think his name's Graham. I, but he, he wrote the Thucydides Trap, so he's, he, he wrote the Thucydides Trap and it basically tops, it basically discusses, you know, whenever there's a, there's a hegemon and there's a rising power, they are eventually going to come into conflict. Right. And I think I, if I remember right, his conclusions were it's possible that the United States and, and China will not come into conflict. And I, I agree that it's possible, but I think it's highly improbable. I, I, I, I, I, I just don't see how we get away from it, quite honestly.

[00:31:45.17] - Speaker 1
That's depressing, but I tend to agree, unfortunately. And, and we see the, we, we see the market preparing for that. If you look at the, at the, at the, those equities that have outperformed those sectors significantly, unfortunately, they're all in drone space, military space. So you have that theme going on on the one side and then you have AI and energy and energy supply on the other side, driving forces. And underlying that, the dollar system, which is, which is still the king dollar, is still the king of the market. Fabio, you wanted? Yeah, yeah.

[00:32:24.05] - Speaker 2
So I think we also have a lot of retail customers, so most of our users that are part of our community are retail customers. So what should the read? So, of course, retail traders do not really maybe have access to all the tools that maybe you have access to all the research. So what are the things that retailers should be looking for when looking at the dollar, when looking at what's happening at the macro level to prepare for kind of like an asset allocation or even like a trade ideas that they can put on, based on. Based on what's happening with the dollar.

[00:32:57.05] - Speaker 4
Well, so I think there's a couple really simple things that retail investors can do, and that's the first thing. The first thing I would say is if you are not good at this, don't do it. You know what I mean? Like, if, if you don't have an interest or a passion for markets, and if the. And you have to be really honest with yourself, if you have a history of not performing well on your own portfolio, then find somebody else to help you do it. You know, I think in today's day and age, there are so many options out there either to get consultations or to get trading advice or to get a professional money manager to help you do it. You know, I think, I think 20 years ago it was much more difficult to get access to good information than it is today. But the first thing I would say is if, if you're not good at it, find somebody else that is and that you trust to help you. The second thing I would say is I am actually a believer in diversification. I feel like it's gotten popular in the last couple years to say diversification is not important.

[00:33:58.12] - Speaker 4
I think Druckenmiller did an interview where he said, I'm a little different. I put all my eggs in one basket and watch that basket very closely. And I think a lot of less than average investors heard that and say, that's what I'm going to do as well. And what I would say to you is, you're not Druckenmiller, so that probably is not going to work for you. Right? So don't have all your eggs in one basket. Don't have 80% of your net worth in one stock or whatever it is. Have a couple different bets out there. Because no matter how right we think we are, we all get things wrong, right? I get things wrong all of the time. And so the key is to try to make as much money as you can when you're right and not get killed when you're wrong. So that, but then after you have a couple of different, you know, assets or a couple different bets, then, then, you know, I can't. I try to keep it pretty simple. I look at things like sentiment, I look at things like positioning, I look at things like relative strength, I look at things like the Stochastics.

[00:34:59.16] - Speaker 4
And when everything is at their top or at their high, then that to me at least says don't buy, you don't have to sell everything, but at least don't go double down with leverage when everything, like right now, I don't think right now would be a good time to go double down long assets with leverage. It doesn't necessarily mean there's going to be a crash. It just means the odds are against you. Right? But then when the reverse comes, if we were to go back to April, all of those things I just talked about were at their lowest. Positioning was wiped out, sentiment was wiped out, relative strength was on the floor. You know, the world was going into a depression. This, you know, every narrative you read was, you know, the US is done. And then look what's happened over the last three or three months. It's so, so when everything is beaten up, then, you know, again, you don't have to go bet everything that it's going to get better, but that's when you would start to buy. And so what, what I, so I use that type of stuff to tell me whether to lighten up or, or to maybe to get more aggressive.

[00:36:02.29] - Speaker 4
But other than that, I think the, you have to, if you look at long term charts of asset prices, whether it's, you know, commodities or, or equities or real estate precious, they tend to go up and to the right over long periods of time. So you. And that, that's for a couple reasons. One is there's more people being born and so there's more demand for that stuff because there's more people that are demanding that stuff. Second thing is that humans are pretty good at innovating and becoming more technologically advanced. And as we become more technologically advanced, then we become more productive and that tends to make the asset prices rise. And one of the most important ones that we've already talked about a little bit is that fiat currencies tend to lose value over long periods of time. And so for all of those reasons you don't just want to be sitting in cash, so you want to be invested. You want to have your money in some kind of a productive enterprise that can compound over time. So that's what, and then I would use those signals, what I talked about a little bit ago, to help smooth out the drawdowns, because there will be drawdowns.

[00:37:11.20] - Speaker 4
Again, if you look at those long term charts, they go up and to the right. But you will also notice there's several scary, scary drawdowns along the way. So if you can, you know, try to avoid some of those drawdowns either by taking a little bit off the table when everything gets really frothy, or buying some hedges when everything gets really frothy, you know that that's what I try to do is try to smooth out the big drawdowns. Because everybody says they're a long term investor until the market goes down 20% and then all of a sudden they sell out at the bottom, you know, because they're scared. And, and, and the last thing I would say is have some cash on the sideline. You don't need to be all in on anything. And even though having cash on the sideline is perhaps a drag on your overall portfolio, it does a couple things. It gives you some peace of mind that you don't have everything all in. Perhaps it allows you to sleep at night a little better. If we do get into one of those severe drawdowns, you're not forced to become a seller in order to get a little liquidity because you already have some liquidity on the sidelines.

[00:38:19.20] - Speaker 4
And then last of all, having that liquidity on the sideline, it's actually going to help you be less panicked and more calm. And you're going to make better decisions when you're less panicked and more calm than if you're trying to do something, you know, in the middle of a big drawdown because your portfolio was 100% invested. So I think if you, if you use a combination of those things, I think you'll have a leg up on most others.

[00:38:47.15] - Speaker 1
I think you're making some very good points, especially when, because there's so much exposure to retail clients. And I only had that in the last seven or eight years, eight years now. I started in 2016. And, and I think one misconception that a lot of retail traders have is they think, hey, I don't have money, I hate my job. I'm exaggerating, right? I'm going to learn trading because these kids on Instagram tell me how easy it is. And I'm just going to make a lot of money real quick, quit my job and that's it. And you need to understand that the financial services industry is in the business of selling illusions. So it's, it's our job as an exchange, for example, to come up with new products. 0dtes, right?

[00:39:30.18] - Speaker 4
Yeah.

[00:39:30.29] - Speaker 1
It's basically Las Vegas we are creating to separate you from your money.

[00:39:37.10] - Speaker 4
Yeah.

[00:39:37.16] - Speaker 1
Okay. And in the beginning is one of the things when, when in interested parties would call us or call me personally, hey, I want to go through your educational program. I would ask them something very similar that you alluded to. Right. In the beginning.

[00:39:52.13] - Speaker 4
Right.

[00:39:52.22] - Speaker 1
And that was like I asked, hey, do you actually care about the non farm payrolls and do you know when they come out every month? Because if you don't, don't even think about this as an easy way out for you to generate wealth, become rich or I don't know what your intention is. If you do this full time like you and I are doing, you need to call it a virus. If you're infected by this virus, unfortunately, there's no healing. You will do this for the rest of your life. Because it's the most complex game on earth and that's the only reason why I do it. It's unsolvable. If it was solvable, I would get bored and move on. This is the most interesting and most complex profession on earth in my opinion because it's. You always learn something new and you. In the beginning you need to understand that. There's two driving factors in my opinion. One is your brain was never constructed to trade, manage risk. Everything is counter to your nature.

[00:40:53.10] - Speaker 4
Right.

[00:40:54.07] - Speaker 1
And I go all the way back to when we were cavemen. So your brain is not made to this. The market is the only place, like you said, where, where people could buy the discount and they're not buying. Right. So what works at Walmart and what works anywhere in retail doesn't work in the market. And the second thing is so passion. And the second thing is knowledge. Learn about the different asset classes, learn what is influencing what. Learn about how the markets are actually functioning in 2025. Because they're not functioning the same way that they did in 1895 with Wyckoff and I don't know what. Versus today there's so much development. Why? Because we, the industry created new products and they all feed into each other. There's always feedback, feedback loops. Right. So if you, if you start at macro and you understand what's driving the dollar to bring it back to the dollar. Understand the difference between. Ah, okay, so the milkshake theory is structural, but then there is also the theory of the dollar. Smile. And what does that mean? Ah, okay, so I see dollar strength when there's dollar, and I see dollar strength when the dollar is exceptional.

[00:42:08.08] - Speaker 1
Right, but you see dollar weakness when the rest of the world outperforms. In terms of what? In terms of growth and. Or the development of inflation. Know what, know the rules of the game that you're in and then learn about your opponents and what different tools you have at your, at your disposal. And to think that you're going to go into some kind of like I read one book and then I'll open an account and I trade. That's exactly what the industry wants you to do. We separate you from your money. This is so complex. It takes years and years and years and years. And then I hear crap like specialize in one thing. So what do you want to specialize? Tell me. You know bitcoin?

[00:42:47.11] - Speaker 4
Okay.

[00:42:48.05] - Speaker 1
Even bitcoin has changed its driving forces over the last few years, you know, and the institutional adoption is changing its character and behavior. Sorry, didn't mean to.

[00:42:59.24] - Speaker 4
No, no, I, I just, I was just going to add that I think there's an additional thing that's. I've seen it more in the last. I. Since certainly since the global financial crisis. And. And I noticed it becoming even more so. I actually tweeted about this last night and I actually have firsthand experience with this. And so when what I'm going to tell you, I'm going to tell you this not because I read it in a book, but because I went through it myself. And you know, I made this mistake myself. And that is after the global financial crisis. I was very mad. I was very angry. I didn't think the way the bankers were bailed out and the way the government saved Wall street at the expense of Main street was fair. And I didn't think the way the monetary system worked was fair. And so I was very angry. The problem with being angry is that's an emotion. It's an addictive emotion. Once you get angry, it's kind of hard, not angry. Especially when you continue to see the injustices, or at least what you believe to be injustices, and then it can become all encompassing and you can then start making investments based on your anger rather than being very neutral and objective about things.

[00:44:17.29] - Speaker 4
Not only that, but you. There's a lot of people now on social media, on, you know, platforms, investment platforms, who Are selling you something or are selling you an idea of something based on their fear or based on their anger. They're angry at the way things are. They're angry at the way the governments are acting. They're angry at the design of the monetary system. And that anger then shows up in the investment recommendations that they make. Now, I want to be clear. I'm not saying that those investment recommendations are necessarily wrong. Perhaps they are right. I'm just saying understand when people are telling you things that they have experience, they have emotions as well. And you have to not only control your emotions, you have to understand the emotions that the people are telling you are going through because it is influencing their recommendations. And this is what I was trying to say earlier is too much as you can. You have to remove your own wants and desires and feelings about things and just try to be as hardcore objective as you can. Whether you like the answer or not is irrelevant. You know, just try to get to the right answer.

[00:45:32.22] - Speaker 1
I like what I'm hearing and I have to laugh a little bit because again, that's so difficult to do, right?

[00:45:38.24] - Speaker 4
It's really hard. Like I said, I. I made the mistake myself for years, I can tell you.

[00:45:45.09] - Speaker 1
First, global financial crisis, Lehman goes, you know, I take my box, I walk out. I had first interview, it was with Morgan Stanley at noon. And that day it was interviews, interviews, interviews. And at 6pm I had an interview with Goldman. So within days, we all had. All of us had new jobs. Why? Because even other players were upgrading. They call it upgrading.

[00:46:08.05] - Speaker 4
Wow.

[00:46:08.13] - Speaker 1
Now I can get somebody from Lehman Brothers. Eventually. I signed with Nomura. Why? Because they paid me so much money. The regulator had already come up with deferred bonus. But us signing on from Lehman, we got it guaranteed in cash, no deferral. You know, it's so unfair that it doesn't matter. Dude, you want to learn about unfair? Read about, you know, the difference between men and women and what's really going on. Don't hate the game. It is what it is.

[00:46:36.29] - Speaker 4
Well, that. I guess that's the point I'm gonna make. If you. If you think the game is unfair, and if you don't like the rules of the game, then don't play.

[00:46:44.29] - Speaker 1
Don't play.

[00:46:45.13] - Speaker 4
Find somebody else to play for you. And. And if you don't like the rules, I completely understand. And if you think it's not fair, then I totally agree with you. But don't. I'm. But my point is, don't throw your money away just because you're mad like.

[00:47:03.20] - Speaker 1
This one guy did on, on Reddit today. He said he was betting like 27, 000 his last money. He hates his job all in right now. Either it works or he has to find a new job. That's crazy to me. But that's also. You were talking about Twitter. That's also social media these days. Yeah, I don't even have Twitter anymore or whatever it's called right now. I don't. Because I don't. I need to focus on my business. And my business is getting, you know, every day, the markets as right as I can possibly get them. Right. And. And trade what I see, not what I think, what I feel like, or whatever. So there's a lot of personal development and personal growth next to learning about how the game works and the math, you know, and what's. What is also about. And that's why I love this profession. It's about growing yourself as a person, you know, noticing your emotion. We had a saying on Lehman Brothers on the trading floor. Be afraid and do it anyways. And it was like, wow, that almost sounds like. You know, when I went to airborne school, the first time you jump out of plane, you shit your pants.

[00:48:04.18] - Speaker 1
You know, you're like, wow. But you do it anyways, right? So this market will turn you into a man or a woman because. And that's why I love it. You have to be 100 responsible for your own actions. You know, you can be.

[00:48:18.26] - Speaker 4
I think, I actually think people that are in the military probably have an advantage in this business over people that were not. Because I. Listen, I was not in the military. You know, I have great respect for anybody that is. But I feel like, you know, the military teaches you, you know, discipline. It teaches you how to, you know, analyze a situation. And I probably, more than anywhere else, teaches you risk management because, you know, if you're in the military, you know, you're facing a higher level of risk than, than probably anybody else.

[00:48:54.16] - Speaker 1
Actually. That's very good.

[00:48:55.16] - Speaker 4
Can I.

[00:48:55.28] - Speaker 1
Can I use that in the future?

[00:48:57.08] - Speaker 4
Sure.

[00:49:00.13] - Speaker 1
And I can and I can agree to all of what you just said. You know, risk management, discipline, and loving to learn. We call it the sock. You know, it just sucks.

[00:49:11.12] - Speaker 4
It sucks. Well, not only. It's. It's also. It's also, you know, in the military. Listen, you have to be a realist. You can't say that we're going to beat those guys just because we don't like them, just because they're mean. Right? You actually have to understand what their capabilities are. What, what what, what their true intentions are and how they can use those against us, or perhaps how they can't use those. But, but the, I guess my point is, is you have to be realistic about the other team. Whereas if you're just playing basketball or tennis and you lose, no big deal. If you misanalyze their skills, no big deal. But in the military, it's kind of a big deal.

[00:49:49.01] - Speaker 1
You know, one, one thing I wanted to add to what you said because we only have 11 more minutes. You were talking about drawdowns earlier on, and there was a research piece. Maybe I can send it to you. I love it. It was a research piece and it was like if God was a portfolio manager, sort of like that. I don't know if you've ever read it or heard about it, but they went ahead and they looked at each quarter, what were the top handful of stocks that performed in the last quarter. And then they went back and they pretended the portfolio manager quote, unquote. God, you know, was long the best performing names for that quarter. And the drawdowns of this perfect portfolio over years was, I think it was mind boggling. It was almost 40 drawdown. So again, you know, it's a huge equity curve from the bottom left to the top right, but there's a lot of drawdowns involved. So for me, for example, very difficult to trade somebody else's model. I can't do it. I, I, you know, I admire people who can. I cannot do it. I need to build it myself, understand it, and then implement it myself.

[00:50:55.05] - Speaker 1
But everybody's different, right? But I thought what you said early on, and Costellani was a famous investor over in Europe, he said, buy when there's blood in the streets and buy when everybody is full of fear. And here's a problem, we can say this easily into the camera. It's really hard to do that moment in time. You know what I did in 2008 when we went bankrupt, I actually got a hunting license in Germany. I bought 10,000 rounds of ammunition and guns. And I thought, okay, I'm serious, Brett. I was like, the system is failing. If people knew what nonsense the fiat system is nonsense, right? Nonsense. Then they, they, they all would own guns.

[00:51:37.17] - Speaker 4
But, well, and that's, you know, and that's the thing though is like, it is nonsense. It is counterintuitive. There's many things wrong with the monetary system. It is prone to failure, right? There are going to be these massive drawdowns, and yet the sun still comes up tomorrow. Markets are still going to exist. And, you know, fiat currency is going to lose value. So what are you going to do? You have to do something. Right. And, you know, and listen, it's funny because on, on the one hand, people will. Again, you got to understand, I'm dealing with a lot of retail investors. And, you know, a lot of retail investors will watch social media and YouTub and they'll go way down the rabbit hole on these stuff. Right. And, and here's the thing is many of these conspiracy theories turn out to be. Right. Right. And so I'm not, I'm not, you know, saying don't pay attention to conspiracy theories, but there's a huge difference between imminent and inevitable. And I don't remember who. I think Rick Rule is the first person I heard say that. But. And I probably didn't quite understand it when they first said it, but it's true.

[00:52:40.06] - Speaker 4
Like, something can be really messed up and, but it can be really messed up for a really long time before any consequences happen as a result of it. I mean, if you went through the global financial crisis and you saw the inner workings of what was happening, and somebody told you 15 years from now, asset prices will be three times as high and the debt will be four times as high, you'd say, no way, it can't go on that long. But here we are. Right. And so, you know, they said the same thing in Covid, that was five years ago, but here we are. And so I know there's a lot of people probably out there listening right now saying, this cannot go on any longer. Well, I'm sitting here selling it. It can go on longer. And I think it will go on longer. You have to be ready for it to go down tomorrow, but you also have to be prepared for it to last another five or ten years. And it's, it's.

[00:53:26.06] - Speaker 1
It.

[00:53:26.20] - Speaker 4
You kind of have to strip out your emotions to do that. But again, that's, you know, I know I've used the word emotions several times. And, and it's true. Like your emotions will screw you in this business or in, in this endeavor. And, and, and, and I'm telling you this because it's. I have to all. I know it and I've been doing it for 25 years, and I still have to work on it because that will get you more than anything else.

[00:53:52.13] - Speaker 1
Yeah. And. And you have to have some sort of understanding of be afraid and do it anyways. You have to go through it yourself, you know. Yeah. Find some setup, some situation. And this is something that we actually Teach where when the markets drop, you know, have a sequence of events, what you want to see. 1, 2, 3, 4, now I can buy the bottom. It's a little bit to what you probably have as well. You know, you were alluding to one or two points that you're looking at and this is now you're going to be scared shitless. You don't want to do it, but you do it. And the way to do it in my opinion is to start in the beginning. And that is know how much money is coming in every month and how much are you spending. You know, that's the first thing most retail traders don't have. The second thing is know that at leave until today, July 22, 2025, the US has the only super mature equity market in the world that is outperformed and has generated 8 and a half percent yield annually since its inception. So there's no other equity market on earth that is as mature, as liquid and as advanced and data driven as the US so know that and then go ahead and do dollar cost averaging.

[00:55:05.05] - Speaker 1
You know, invest in the S&P 500. If you have those two bases covered then now, okay, now let's talk about different asset classes. What season is it right now in the market? In the summertime you want to be summertime, quote unquote, you want to be long equities. In the winter time you want to be long bonds. Understand what those central banks are doing. You know the difference between a business cycle and a credit cycle and so on so forth. And then you're going to love it. You're going to love it because you'll have money that is compounding slowly. You know the theorem of the greater fool's theorem in the equity market. Yet it's true. I agree with you. Equities are dynamic because companies are dynamic and because we are growing as humans, we are growing. So if you invest in an index, an index will always end up, you know, as a 45 degree line. There's drawdowns and there's exuberance, but there has survivorship bias and a lot of people don't even know that. So they're going to Nvidia until one day. And I'm just making this up, but I've seen this with a lot of companies.

[00:56:07.25] - Speaker 1
Take Lehman until one day that stock doesn't exist anymore. Well, it's just going to get replaced in the index. So save in the index and then get more involved in my opinion, in either a sector or an individual name if you want later. But Also understand if it's winter time in the market, I. E. Bond time, and you're looking and Tesla Equity, why not look at Tesla bonds at that moment in time, you know, so you can, you can go deeper if you want or get somebody like you to do it for them.

[00:56:38.15] - Speaker 4
Well, you know, I think. I think one of the last points I'll make here is part of the reason I focus on the dollar is not because that's my investment. I'm not sitting in dollars. That's never been the recommendations for everybody to just go sit in dollars. Now I think everybody should have cash, and I think that cash should be in US Dollars versus some other currency. But the recommendation has never been to just sit in dollars. But the reason I focus on the dollar is because every financial crisis of the last 50 years has coincided with a rising dollar versus other currencies. Now, that's not guaranteed to happen in the future. Can it be different in the future? Sure, it can be. It just hasn't been and I think it's unlikely to be next time. And so I think it's really hard to get everything else in your portfolio right if you get the dollar completely wrong. And it doesn't mean you have to be 100% right about the dollar, but you just have to understand why it's doing. Doing what it's doing because it does underline everything. So it's a form of risk management.

[00:57:38.05] - Speaker 4
And the other thing I would say, and the reason I keep coming back to the dollar will outperform other currencies is not because the dollar is a good currency. It's a horrible currency. It's just better. It's just. It's just better than all the others. And part of the reason, part of the reason the dollar is a superior currency to the others is because all of the others are backed to a certain extent by the dollar. And what I mean by that is every central bank in the world holds US Treasuries on their balance sheet. Every bank in the world holds U.S. treasuries on their balance sheet. If U.S. treasuries go no bid and the yield spikes and the price falls, is that bad for the United States? Of course it's bad for the United States. But every bank in the world goes under under that scenario. Every central bank is now impaired under that scenario. So it's not uniquely bad for the United States in that scenario. It's bad for everybody. And that was actually the genesis of the milkshake theory was that I thought we were at a point where interest rates were going to start to rise.

[00:58:44.19] - Speaker 4
I don't think Treasuries are going to go no bid. But I thought prices were going to come down. And not only that, but when Yields rise, when U.S. treasury yields rise, is it bad for the U.S. yes, it's bad for the U.S. but it's a nightmare for any emerging market country or company that's trying to raise money because now they have to compete with the U.S. treasury. So if a U.S. treasury is yielding 5 or 6%, what do you think a Brazilian corporate has to offer or a Turkish corporate has to offer? That means their funding costs have just gone up as well. So, so in that scenario, I come back to the world. There's four things that I think can happen. The whole maybe, maybe everything gets better. Maybe we find some new technology, some new innovation comes out, the world becomes more productive and we all grow out of this. In which case I'm happy to be invested in the United States. Perhaps the whole world goes down together. Perhaps this meth is not, this mess is not solvable and we're going to go down. In which case, you know, the world, the US goes down, but the rest of the world goes down too.

[00:59:49.16] - Speaker 4
Might as well just BE in the U.S. the third thing that could happen is maybe the U.S. continues to chug along, does okay, and the rest of the world has problems. We've seen that many, many, many times. And the fourth thing that could happen is the rest of the world gets better in the US Falls right now, out of three of those four scenarios, I would prefer to be in the US than, you know, somewhere else. And it's only in that last scenario where I'd prefer to be outside the United States. But the probability of that last one happening, based on what I just told you about the whole world owning US Treasuries, I think that last possibility of the US doing, or the US doing really bad and the rest of the world doing really well is a very low probability event. Now it's not zero, so I have to consider it, but it's a low probability event. And so that is, it's that. That's a pretty simplistic analysis. But just based on that, keeping it simple, I want to have the majority of my assets in the United States as opposed to abroad.

[01:00:51.18] - Speaker 1
And goes exactly back to what we said in the beginning, the tick data from last week. Yeah, it's a difference. Long term purchases by US versus long term purchases of debt by foreigners. Second highest reading since 2004. Basically the same reading as May 2021, you know, outside of 1 billion. So there is money flowing into long term U. S Debt.

[01:01:15.24] - Speaker 4
Why?

[01:01:16.14] - Speaker 1
Because we're at yield levels that are attractive compared to the rest of the world. And what you can take from this as the audience is you see a very strong dollar, you want to short emerging markets, you want to see, you see a weak dollar, you want to look for long opportunities in the US Market, goes back to your carriage rate. But not everybody knows what a carry trade is. Yeah, yeah, it's important to have that on the radar. Get the dollar right. You, you have opportunities to make money. Always, always. And stop wasting your time on okay, if I'm now going to buy whatever SDRs by the World bank because the dollar is going under. No, that's not happening tomorrow. There's a very low probability that the world ends. It gets you a lot of clickbait, lots of views on social media. But if you as a retail trader or investor invests in that, in that portfolio in that situation, there's a low probability. A higher probability is that the world will continue for the next X years. We don't know what's going to happen. And you just do business as usual and compound wealth.

[01:02:16.03] - Speaker 1
That's, that's your job. Create wealth, protect wealth and compound wealth, basically.

[01:02:22.25] - Speaker 2
All right guys, so I think this was awesome. I think. I know you have 60 minutes, Jay and Brent. So I, I don't mean to cut it off, but I think this was an awesome session and I really appreciate your time. Jay, as always. We love you having you here. I love your, your approach and I love your, your knowledge that you bring and brand. It's great to have you here and I think what you said at the end was really simplifying to the max, but that's exactly how a retail trader should look at the world basically. Like when you allocate what are your best probability of success and then based based on that, allocate accordingly. And thank you Tim for being here as always. But yeah, I really appreciate you guys and see you soon in the next sessions.

[01:03:09.09] - Speaker 4
Thank you. Thanks for having me.

[01:03:10.23] - Speaker 3
Right guys, thanks.

[01:03:12.11] - Speaker 1
See you later.

[01:03:12.29] - Speaker 4
Ciao.