The Pomp Podcast - #979 Brent Johnson On How A Sovereign Crisis Could Happen Soon

Episode Date: May 26, 2022

Brent Johnson is the Co-Founder of Santiago Capital. In this conversation, we discuss Brent's infamous "Dollar Milkshake Theory", the current macro environment, the collapse of currencies, Fed interests rates, how Brent is managing capital during an uncertain market, and why Brent does not recommend Bitcoin to his clients at this time. ======================= Since 2018 Copper has been at the forefront of institutional digital asset development.   From award winning custody solutions, to creating the first truly off-exchange settlement function, Copper pioneers technology, products, and services, in lock-step with a rapidly changing world.    No other infrastructure provider covers as many assets, across as many exchanges, with the speed and security that Copper can offer. To learn how Copper helps the world’s largest institutional investors secure their digital assets, head over to copper.co   Copper - the unfair advantage. ======================= Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Compass was founded with the goal of making it easy for everyone to mine bitcoin.  Visit http://compassmining.io to start mining bitcoin today!  ======================= Bullish is a powerful new digital asset exchange built for institutions that delivers the innovations of DeFi in a regulated environment. The Bullish Hybrid Order Book pairs the high-performance of a traditional Central Limit Order Book with automated market making. Powered by deep Bullish Liquidity Pools, backed by the multi-billion dollar Bullish Treasury. So, you can trade with certainty and at scale across variable market conditions.   Learn more at Bullish.com or follow @Bullish on Twitter. Because the future belongs to the bullish.   *Not investment advice. Digital assets and cryptocurrencies are high risk products. Consult your professional advisor before dealing in them. Bullish’s services are available in select locations only and not to U.S persons.    Visit https://bullish.com/legal for important information and risk warnings =======================

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Brent Johnson is the founder of Santiago Capital. In this conversation, we talk about his dollar milkshake theory, gold, Bitcoin, monetary policy, the Federal Reserve, interest rates, inflation, and much more. I really enjoyed this conversation with Brent. I hope you guys enjoy it as well. Before we get into this episode, though, I first want to talk about our sponsors. Today's episode is brought to you by Copper. Since 2018, Copper has been at the forefront of institutional digital asset development. From award-winning custody solutions

to creating the first truly off-exchange settlement function, Copper pioneers technology, products, and services in lockstep with a rapidly changing world. No other infrastructure provider covers as many assets across as many exchanges with the speed and security that Copper can offer. To learn how Copper helps the world's largest institutional investors secure their digital assets, head over to copper.co. Again, copper, the unfair advantage. Check them out at copper.co today. Next up is Compass Mining. Compass Mining is the world's largest marketplace for mining hardware and hosting. With Compass, everyone can mine Bitcoin. Their team makes it easy to start mining wherever you want, at home or in one of their 23 hosting facilities around the world.

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Again, compassmining.io. Go check them out and let me know what you think. This episode is brought to you by Bullish. Bullish is a powerful new digital asset exchange built for institutions that delivers the innovations of DeFi in a regulated environment. The Bullish hybrid order book pairs the high performance of a traditional central limit order book with the automated market making. Powered by deep Bullish liquidity pools backed by the multi-billion dollar Bullish treasury,

so you can trade with certainty and at scale across variable market conditions you can learn more at bullish.com or follow bullish on twitter because the future belongs to the bullish now this is not investment advice digital assets and cryptocurrencies are high risk products consult your professional advisor before dealing in them bullish services are available in select locations only and not to u.s persons visit bullish.com legal for important information and risk warnings Go check him out at Bullish.com or follow at Bullish on Twitter. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect

the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. All right. I think we've got Brent here with us now. Brent, how are you? I'm good. How are you doing? I'm doing fantastic. I'm very excited to talk to you. I think the first time I talked to you

on the podcast was back in 2020. And you had coined the dollar milkshake theory. And at the time, I remember saying to myself, well, the one thing that I'm for sure is that that's great marketing, because I'll never forget that name. And maybe what we could do to kind of start the conversation is just help people understand the high level. What is this dollar milkshake theory? and then we can get into kind of what's happened over the last two years. Sure. So in very simple terms, and kind of the reason I came up with the whole description of the thesis as the milkshake theory was I wanted to kind of come up with just a really simple way to explain it to people. And essentially what I think has happened since

the global financial crisis in 2008, and you could probably actually take it back even further than that, is that the global central banks, monetary authorities, governments, however you want to defined the people that kind of run the world, for lack of a better word, have flooded the market with liquidity, whether through QE or stimulus programs or fiscal spending. And, you know, once we kind of got into that kind of 10 years into that kind of 2018, 2019, I thought we were set up for a global sovereign currency crisis and sovereign debt crisis. And I thought what would happened was that all of that liquidity that had been, you know, pushed into the global financial system, for lack of a better word, would be sucked up into the United States and into the US dollar.

And so I used kind of this analogy from this movie, There Will Be Blood, where this oil baron is, you know, negotiating with the guy that owns the land right next to him. And the guy's trying to sell him his land. And he says, I don't need to buy your land. All I got to do is stick a a straw down into the ground and I can drink your milkshake. Um, and that's kind of what I think is going to happen. Uh, it's not so important who produces the QE. What's more important is who captures it. And if you look over the last couple of years, the United States markets and the dollar itself has captured, uh, I would say the most of the global growth. Um, the, you know, the dollar has risen versus a number of global currencies, despite

all the efforts to keep it down. And so that's, that is in essence, the milkshake theory. So I think there's a really good framework to kind of think about this. There's who creates the QE and then who captures the QE. And maybe we can talk about creation first. It seems like once the pandemic occurred, and you and I were talking originally, every central bank in the world basically raced to try to have some sort of control to inject liquidity into the market. It almost felt like they were racing to see who could devalue their currencies faster at one point. And so when you think about the creation of QE, maybe give us kind of a post analysis on what's occurred over the last two years around the world. Has it all been generally at the same rate? Do you think that there's some differences on a geographic basis? Or how do you evaluate like the creation of QE now that we're kind of two years after the pandemic started? Well, I guess there's a couple of different ways you can look at it. You can look at the central bank balance sheet as a percent of GDP. You can just look at it in total value. You can look at it as a percent, how much has been put on the central bank balance sheet that is a percent of all outstanding treasury issuance or sovereign issuance. And, you know, I think to your point, coming right out of, you know, the COVID response, I think the U.S. was the most aggressive and did the most initially. But I think as we got into it, it became clear that while the U.S. was seemingly the most aggressive, and I would agree that they initially were, that everybody else had to do it as

well. and the the big difference the big difference is that and what if you again if i take it back if you look at the the amount of bonds that the u.s bought as a percentage of all outstanding u.s treasuries and then you compare that to other countries the u.s is far and away the the least offender or or it has done the lowest amount so again while the the u.s has done an incredible amount they've done a lot less than the rest of the world if you measure it that way the other thing, or you can also look at it as a percent of M2. How much did M2 grow? Well, the problem with using domestic M2 and then comparing it to other countries' domestic M2 is that every other

country, quote unquote, prints for their own domestic economy, but the U.S. prints for the entire world because the U.S. is the global reserve currency. And there is a bigger dollar market that exists outside the United States than exists inside the United States. And there's no entity that sits outside the United States that can create dollars or provide dollar liquidity to help that market outside the United States when it needs it. So when the US, and this is why I have said on several occasions, and I kind of said it jokingly, but I'm actually serious, is the more they print, the more the Fed prints, the higher the dollar will actually go versus its peers, because it will force every other currency to do the same thing. And that's kind of what we've seen.

You know, for the first, call it six months to a year after COVID, the dollar fell. It went from like 102 to 89 or 88, or I don't remember exactly where it went to, but it fell 10 or 12%, let's call it. And a lot of people were saying, this is the dollar's on its deathbed. It's going to 85, it's going to 80, it's going to 75. And my point all the time was that unless they completely redesign the system, we're going to end up right back where we were on March 20th. Because during that year, when the dollar went from 102 to 90 or 89 or whatever it was, the rest of the world did not use that time of dollar weakness to get out from underneath their dollar loans and their need for the dollar. They actually increased their need for the dollar because they issued more new

dollars, more funding in dollars than they did in any other currency. So they actually became more dependent on the dollar over the last two years than using it to get out from underneath the pressure of the dollar. And so that's why we're essentially back to where we are. If you think everybody is going to have to provide supply, and let's just say they provide it in relatively the same rate. Now, there's obviously differences, but let's just say that they all do it at the same rate. Then the argument comes down to demand. If supply is the same, then it comes down to demand. Everything in economics ultimately comes down to supply and demand. And there is just much greater demand for dollars on a global basis than there is for yen or euro or real or Australian dollars or yuan or, you know, whatever currency you want to pick. There is more demand globally for a dollar than there is for any other currency. So if supply is equal, it comes down to demand and demand just swamps. You think that the U.S. has provided a lot of stimulus and a lot of new money, but the demand has just swamped it.

And that's kind of where we're at today. The dollar is kind of back to the levels it was post-COVID, or I mean, sorry, just right at the height of COVID. Yeah, this is such a fascinating point. Talk to me about when the Fed is actually creating more money, right, and they're injecting all this liquidity. Walk people through the relationship as to why that forces other central banks to do the same thing. Because I think that's kind of a key piece to this that people may not understand is that the Fed may take an action and then that forces the hand of other central banks. And what I immediately think of is in the reverse situation, the Fed says, hey, we're going to start tightening. We saw the ECB recently kind of capitulate on their negative interest rate strategy. They say, hey, now they're going to start to actually raise and kind of move in lockstep with the Fed. So talk about that relationship between the Fed's actions and then other central banks around the world.

OK, so it doesn't happen right away. And, you know, the Fed could start easing. and they can maybe do that for three months, six months, nine months without everybody else having to do it, or maybe without having to do it at the same rate. But if that happens, then the dollar becomes a lot weaker, right? Well, if the dollar becomes a lot weaker, then their currencies become a lot stronger. The problem is, is that the U.S. is an importing nation, and those other countries are exporting nations and it becomes harder for them. Their goods become less competitive as they become more expensive. So as their currency appreciates, it becomes harder for them to

compete with another country that maybe their currency is strengthening against. So that's part of it. And because the whole world is in basically the same situation, because there's not much global growth going on and because everybody has borrowed more money than they can ever possibly repay. They've got funding pressures. And so as their economy's slow, they end up having to do their own form of fiscal stimulus or QE or stimulus, however you want to define it. Maybe they just cut interest rates. But ultimately, they end up having to match what the US is doing. And again, it also has to do with the fact that while the dollar was weakening, They didn't use that opportunity to pay off their dollar debt.

They took out even more dollar debt, which, again, as I said earlier, increased demand for dollars. And so once everybody else starts printing again to try to catch up with the U.S., you end up right back where you are. Now, I'm of the belief that we're headed towards this sovereign crisis because I believe that the dollar going higher causes the world problems, Whereas the dollar going lower actually perpetuates the system that we currently have. And so as we move forward in that, I think the rest of the world is going to be forced to print, you know, for lack of a better word, their currency more than us. And I'll give you the reason this is such a problem. The reason it's such a problem is because now we have because of everything that happened after COVID. Now we have inflationary pressures, extraordinary inflationary pressures, which makes it harder for those governments and those monetary authorities to go back to easing, because if they go back to easing, that increases the inflationary pressures rather than softens them.

And so this is the environment in which hyperinflation can occur. Now, I'm going to stop right there and say that I think hyperinflation term is grossly overused and it's used so often and used so incorrectly, it's kind of lost its meaning. But hyperinflation is completely and utterly different than high inflation. Hyperinflation is when the currency loses all value and it takes, you know, a thousand dollars to buy an egg or something like that. That's hyperinflation. It's like 60% inflation month after month after month. It's not 16%. It's not 11%. Again, they're two completely different worlds. But this is the environment in which hyperinflation can occur. The second thing I'm going to say is this is not with regards to the dollar, because the U.S. can print its own currency, as we've already discussed. But there is incredible demand for that currency, not just domestically, but outside the outside the United States. There's incredible demand for the dollar. Now, you might not like that, but that is a fact of life.

And the sooner you accept it, the better off you're going to be. So now that is that's not the same. Now, here's let me just finish this point. This is not the same for Turkey. This is not the same for Australia. It's not the same for Russia or China or anywhere else for that matter. You do not need rubles in South America. Now, you might say that now you need them to buy oil, but you don't need them to the same extent that you need the dollar. You don't need Australian dollars in Singapore. You don't need Brazilian real in Canada. But you do need dollars in all of those places. And so what happens is now that the dollar is higher, and since all of these other countries have dollar funding needs and dollar needs for trading, the invoices that take place in dollars, they have the worst of all worlds. because global growth is coming down, so their top line revenue is falling, their funding costs are rising, inflationary pressures are high, and the inputs, energy, food, other important commodities are priced in dollars. So their bottom line is rising, their top line is getting squeezed, and their profits are falling. And when that happens, what do they have to resort to to get

more dollars? They have to print their own currency to go buy the dollars to get these important imports or these important inputs into their businesses. And so if you have a situation where there's incredible demand for dollars outside your country, but no demand for your own currency outside your country, and you have to print in order to get dollars, that is how hyperinflation takes place. So anyway, I think that we're headed there for other countries. I think the US would be the last place if that happens. So my question was going to be around, I agree with you that hyperinflation is a term that gets thrown around. And you know, There's a lot of people who think 10% inflation a year would be hyperinflation.

It's not, right? And so it's one, I think it's important to call out. I don't think you, myself, anyone else is cheering that on. That's a very, very bad situation. And there's a lot of people who get hurt, as we've seen in country after country that's experienced it. It's the worst. It's the worst.

Is your thought process, and I think I'm hearing you say this, is basically the countries that have the weakest currencies, that's where this occurs first. And it almost kind of like eats up the stack of the strength of currencies. And so it starts with the weakest and eventually gets to, I don't know, 50% of currencies. Like how, I guess, pervasive could something like this really become around the world? Well, so this, I think it can become very pervasive. And I think that's why we're going to have a crisis is I think it's, I don't think it's just going to happen in one or two places. And because we are no longer kind of moving towards globalization and we're kind of moving towards deglobalization and we're moving towards two supply chains.

and we're moving towards a scenario where the world is fractured as opposed to working together, I think it's more likely to have contagion. So for the last two or three years, when something kind of bubbled up in one country, it just kind of stayed in that one country because the world was kind of cooperating. Everybody was doing the same thing. Everybody was providing stimulus. Everybody was doing QE. And so it kind of worked together just to kick the can down the road. But because we're no longer working together, because we're no longer cooperating, because we've got this fracturing global economy, I don't think the world is going to be as quick to work together. And the country, I think there'll be certain countries that work together and they'll work against other countries. So I think the likelihood of contagion happening is much higher.

And so I think to your point, it'll start in the weaker countries and then it'll bubble up to the medium countries and then the bigger countries. But I'll point out that this is not just I'll give a couple of examples. It's not you know, we've seen it in Sri Lanka. I mean, they're having incredible problems. You know, we've seen it in Turkey. We've seen it in Argentina a number of times before. Right. But this year where we are seeing, again, not hyperinflation, but just where this phenomenon is playing out is in the euro and the yen. The yen is down like 20 percent, something like that year to date. Now, that's that's incredible. I mean, it's one of the biggest currencies in the world, maybe the second or third biggest currency in the world. And they're down dramatically because they have so much debt that they cannot possibly let interest rates rise.

If interest rates rise, their banks, insurance companies, pension funds that have bought all of these Japanese either zero yielding or negative yielding treasuries. If interest rates even rise one percent, it bankrupts the entire Japanese system. So they can't let interest rates rise. So they have to go out and buy as many bonds as possible to keep interest rates low. And when they do that, they provide more yen to the market. And so you've got this situation where there's not a lot of demand for yen outside of Japan, but they're having to provide an incredible amount of yen inside Japan in order to combat this rising interest rates.

And so the yen has broken this 40-year support line. And it's a big deal. It's a very big deal because now it's having knock-on effects for some other Asian currencies. The Hong Kong dollar is now under pressure. Their Hong Kong monetary authority has had to come out for the first time in several years and actually buy Hong Kong dollars in order to support the price. China has had to institute massive stimulus in order to combat the deflationary pressures that they're having inside their economy. And as a result, the yuan is now starting to weaken. And the fact that U.S. treasuries now yield as much as a Chinese treasury, there's not as much flight into China to buy a treasury with a higher yield than the U.S.

And so money is actually leaving China. So, again, we've got this perfect setup for this crisis. Now, Anthony, maybe it'll never come. You know, I can be wrong. Of course I can be wrong. You know, these government officials are amazing at being able to kick the can down the road. My point has always been that if I'm even a little bit right, which I'm not going to be 100 percent right, it just ain't going to happen. But if I'm even a little bit right, the consequences are extremely dire. So I don't have the luxury of ignoring it. And so far, it seems to be playing out as I expect. Now, it's taking longer to do it. And that's typically how these things go. And I think it might take another four or five, six years for it to fully play out.

I don't think this is necessarily going to be over by August or September. Could be. You got to be ready for it. But all of these things that I've been thinking about are kind of starting to show up and they're showing up in very important places. How exactly would a sovereign crisis play out? What does that, from a sequential standpoint, how does that play out and what happens in that scenario? Could you repeat that? I just lost you for some reason. I'm not sure what happened, but I didn't hear you. How does a sovereign crisis actually play out? What does that look like? And what happens from an order of operations or a sequence that if it started to occur, people would experience or see this? Well, let's use Turkey as an example, because Turkey is a smaller country. It's harder to see this playing out in Japan, even though it already is starting to. But Turkey is an economy that has borrowed a lot of money in dollars. So they need a lot of dollars to service the dollar debt that they have. In addition, Turkey imports 98% of their energy and a huge percentage of their food. Well, energy is priced in dollars and food imports are priced in dollars. So they have an incredible amount of demand for dollars from Turkey. But again, there's not a lot of demand for Turkish lira in Morocco, right, or in the United States or in Brazil. So what they have had to do is they've had to print a lot of lira to combat these pressures. the inflate the official inflation rate in Turkey is like 65 or 70%. So if the official

inflation rate is 65 or 70%, it's probably double that in real life, right. And so that that's how this is how you start to see it playing out. Now, what has happened in Turkey to combat this? Well, they've instituted a number of capital controls. So that's one signal that you would see. The other thing is they would, you would start to see social unrest, because it's not fun for people. People typically don't revolt when they're warm and their bellies are full. They typically revolt when they're cold and hungry, right? And so if you look back throughout history, you have very rarely seen a revolution, certainly not a successful revolution, when inflation wasn't a big part of it. I mean, they just kind of go hand in hand. So if you start to see a social

unrest, Sri Lanka, right? There's massive social unrest because inflation has gotten so high. But you can start to see that. We've seen that several times over the last couple of years in Turkey. We could easily see that happen again. The other thing that you would see is you would start to see the leaders of the company come out and say incredibly ridiculous things that can never actually happen. And so like one thing, like Erdogan is the head of Turkey. He's the prime minister, the president of Turkey.

And he's also kind of the de facto head of the central bank. Well, when everybody started taking their money out of their dollars out of the Turkish banking system, he basically stopped them from doing that. And then he said, if you keep your money in the bank and if you hold it in liras rather than dollars, I will make up any difference you lose versus the dollar. You have to put it on deposit for three months, six months, nine months. But if you do this, then but if you hold in there, then you don't have to worry about foreign currency losses because we'll make it up to you. But let's think about what that means. So now the someone had let's pretend somebody had one hundred thousand dollars in dollars in a Turkish bank. And everyone says, well, you can't take it out. But and now you need to convert it to lira. Okay, so now he takes the dollars, gives it to the central bank, and then the central bank gives lira to this deposit, this depositor. Okay, so now he has lira instead of the depositor has lira. So now let's say the dollar rises 10% versus the lira. Okay, so now that investor, that depositor should actually have $110,000. So the way Erdogan makes it up to him is he prints another $10,000 of lira and puts it in the account.

So basically what he's doing is you're, again, you're increasing the supply of lira. Eventually that's going to, so he's kind of working against what he's trying to accomplish. He's trying to keep the lira strong, but he's actually instituting policies that will make it weak. eventually, you know, and so far the market has believed him and they've done it. They've kept their money in there, but eventually, you know, inflation is going to go even higher. He's going to have to print even more lira. And then, you know, at some point people are going to say, I just don't trust this guy anymore. I don't believe this. And they're, and they're going to go to the bank and they're going to try to pull all their deposits and there's not going to be enough money for everybody. And so then there'll be this run on the bank and there'll be social, there'll be riots and there'll be, you know, the food prices will be skyrocketing.

So they'll be pissed off about that. So that those are the types of things that you will see. And again, everyone will come out and say this is the work of the evil international speculators or whoever. He'll blame it on somebody else. Right. He won't take responsibility for it. So those are the those are the types of things you need to look for. When you think about the current situation, the Federal Reserve obviously switching course from a super loose monetary policy, basically pumped asset prices through all this liquidity into the market since, you know, really kind of global financial crisis. but let's say 2020 when they, you know, kind of took it on steroids. Starting in November, they started talking tough. Earlier this year, they start to raise interest rates.

The market is pricing in 10 interest rate increases this year, 300 basis point interest rate by the end of the year. Given this kind of, I'll call it a geopolitical and potential sovereign crisis backdrop, can the Fed continue to increase interest rates and conduct quantitative of tightening? Or what is your expectation of what the Fed actually will be able to do given kind of the complexity of the global game? Yeah, so I don't think they're going to get 10 hikes in. Now, I always say I never rule anything out. And I'll give you an example. At the end of 2000, you know, after the global financial crisis, they did extremely loose monetary policy for years, right? They raised interest rates one at the end of 2015, and didn't

do it again for two years. And then everybody said, they're never going to be able to do it again. But then they did it. And everybody said, never gonna be able to do it again. And you know what? They did eight more hikes. So I didn't think they'd be able to do it, but they did it. So that's one thing. Nothing is certain. There's so many people that are just absolutely certain that they know how this is all going to play out. And to me, it's one of the most uncertain times in history. So first of all, don't be certain about anything. But that said, I don't expect them to be able to get eight or nine hikes. But I do expect them to keep hiking until something really breaks. And when I mean something, I don't mean stocks. I don't think that they care that

stocks are down, partly because stocks are still up, what, 60%, 70% from where they were at the COVID lows. I think in January 2020, so two and a half years ago, I think stock prices were right around where they're at now. So stocks went up a lot, they've come back, but they haven't crashed from where they were two years ago. And I think the Fed is okay with asset price inflation coming down, if it also helps them try at least to quash consumer price inflation. I think part of their main goal here is to squash inflationary pressures. I think one of the biggest knocks against the Biden administration is they haven't done enough for the little guy or Main Street to fight these inflationary pressures. And so there's an election coming up in the fall, and Biden clearly would

like to have a Democratic Congress rather than a Republican Congress to work with. And so I think he needs to be seen to be helping the little guy as opposed to the rich Wall Streeter or the elites or however you want to define that, right? So I think their number one goal is to get inflation under control come election time, or at least try. And I think they don't necessarily mind equity prices going lower, but they would mind very much if funding markets seized up. So if the credit market started to break, if yield spreads started to really widen, if companies or entities could no longer fund their debt service, that would be the time I think that the Fed would come in

and would reverse course, so to speak. But I don't think they're going to do that. I think they're going to hold out longer than many people think. Now, at the end of the day, my job is not to be right. My job is to make money. So if I'm wrong, that's fine. I'll have to pivot and be ready for it. And I'm kind of prepared for anything.

I think that they're going to hike. I think they're going to continue. I think they'll get more off than many people think they will. But ultimately, it will break and we'll be back to reversing course. But the point I would make is this won't happen in a vacuum. What's not going to happen is that the U.S. isn't going to reverse course and go into a big recession and things are going to be beautiful in Brazil and things are going to be beautiful in Canada and things are going to be awesome in Turkey and things are going to be incredible in Russia. We're not going to have a situation where the U.S. goes into a massive recession and the rest of the world is OK. Again, never say never, but that is about the lowest probability event I can think of. Talk to me about how you're allocating capital today, right? When we talked back in 2020, what's changed in the portfolio and kind of how do you think about positioning yourself for this potential scenario that I would say that, you know, you're optimistic, maybe not from like a positive you want it to happen, but you think it's going to happen. So how are you allocating capital and what's the portfolio look like?

Well, from a thesis perspective, I haven't changed how I want to. Exposures have changed a little bit. We have more cash now than we did then. Well, I should say, I can't remember exactly when we spoke, Anthony, but if we spoke in February of 2020, I'd probably positioned pretty similarly. If we spoke in May or June. It was like May or June, I think. Okay, so then I probably, you know, I probably am more hedged now than I was then. So the portfolios that I manage, we manage separately managed accounts. And a lot of my clients have had for 10, 15, some cases, 20 years. So we've owned equities for all of that time. And so typically, when we reduce exposure to equities, we don't necessarily sell them. A lot of times we'll hedge them. So we've been not fully hedged, but heavily hedged on our equity exposure all year, but we still own equities. um you know we have a couple years ago we dramatically reduced our duration in fixed income and so now we own short-term fixed income um now that that hasn't made any money in fact it's down a little bit year to date but it hasn't gotten smoked the way you know a 10-year bond or a 30-year bond has so that's kind of a cash substitute so we have uh hedged equities uh

higher levels of cash than we typically do short-term fixed income uh we have allocations to real estate. We have out in our stock portfolios, we have a heavy allocation to agriculture and energy. So those positions have done well. All clients, not all of them have done it, but we heavily recommend that every of our clients hold gold. And again, I'd say the average allocation in our portfolios are anywhere from 5% to 20%. And then we have an allocation of volatility and the volatility, you know, uh, did not, the volatility allocation over the last two years has not done well at all, uh, because there hasn't been much. Um, but the rest of the portfolio did well. Now this year to date, uh, the volatility portfolio is doing better because

we've, we've got volatility again. And I expect that volatility to continue kind of for the rest of the year and into the next couple of years. Last thing I want to talk about is, uh, is Bitcoin And you talked about gold. I know that you've been heavily allocating and I'll say heavily just that five to 20% range that you just described. What are your thoughts on Bitcoin today? Do you recommend it to clients? Do clients buy it? Do you think it's absolute trash? Like, what's the general thought process? Well, I wouldn't say that I recommend it. I think you know that I'm kind of skeptical of it. But that said, I have clients who are very interested in it and I have helped them buy it. And so some of my clients own Bitcoin and I help them think about it and how much and where and with who and all of that kind of stuff. um you know i i i've long had a problem with bitcoin because i've long had a problem with stable coin market right and you know specifically my issue has been with tether um now we haven't really seen um the dramatic dramatics play out in the tether market but we did see them have played out pretty significantly in some other stable coins um and so that if if we could

kind of get and i know a lot of people think this is fun and brent just needs to get over it but But, you know, I feel like the tether is kind of the euro dollar market for for the crypto world. And it permeates all the different institutions and entities and exchanges. And until that gets resolved for me, it would be really hard for me to to go hard into something like Bitcoin. Now, the other thing I'll say is. Philosophically, I love Bitcoin and I don't have any problem with investing their own money in Bitcoin. right um as a fiduciary i i can't tell somebody go put 100 of your money into bitcoin uh even if i did like that i would never say that because i don't think that's the right thing to do um but i i think the other thing that i have been worried about with bitcoin and i think or crypto

however you want a digital aspect however you want to define this space how do you define it by the way what's the right way for me to say this because a lot of times i'll say crypto and to say, but Bitcoin isn't crypto. What do I say? How do I refer to the whole industry? Depends on who you ask. I think the way, at least the way I look at it is Bitcoin is very much digital sound money. It's trying to be a currency, whether you think it's a good currency or not. So store value, minimum exchange, eventually unit of account. There's a lot of other things that aren't trying to be currencies. So they may be trying to be the equivalent of equities or commodities or whatever. And so I think that's where you hear people say, hey, it's Bitcoin

in crypto uh it's really just one's trying to you know essentially arise and be the global reserve currency uh with this programmatic monetary policy and then everything else is taking you know commodities uh or equities etc and just trying to put it onto a blockchain got it so so my my other worry or criticism however whatever the right way to define that is is that the powers that be will crack down on it now it doesn't mean that they will be successful i happen to think that they will be more successful than a lot of other people. But I think we're starting to see that, you know, you're starting to see more and more monetary authorities come out and say it needs to be regulated. We need to think about this. The little people have gotten hurt. Now, don't get me

wrong. There's other, you know, governmental agencies and entities that are trying to promote Bitcoin. You know, we just had the, you know, this thing down in El Salvador last week with a number of central bankers from some smaller countries meeting with Bukele about how they've instituted their Bitcoin policy. I ultimately think that it's going to be a much harder game for Bitcoin advocates than they think. I think the government has a lot more tricks up their sleeve than they do. I think they'll be more successful regulating it, squashing it, again, however you want to define that. That said, I love the idea. I really do. I would love it if we had the ability to choose whichever currency that we wanted to use. I don't think that that's a reality. For

much of history, you didn't get to choose what your currency was. Typically, the local power, whether it's a president or a prime minister or a warlord, whatever it is, the king, they say what money is and then they enforce it and you know well as much as i might like you know the freedom of to choose you very rarely in history if you had the freedom to choose what your money was and and i just i think we're actually going towards an area era of centralization rather than decentralization i know decentralization is the big uh the big push the big want and i agree i would love a decentralized world i don't think that's going to happen or at least i don't think it's going to happen yet so um anyway for all those reasons i have

i i don't recommend bitcoin yeah i am i actually think that uh hearing you kind of talk a little bit more about it and some of the nuance of your thought process is that you and the bitcoin community actually see eye to eye right i think that the bitcoin community would actually argue like hey the world is going towards centralization uh they're all the all these things that you're describing like they very much like yes agreed agreed agreed and they're just kind of shaking their head yes uh maybe where there there is a difference of opinion is more so what do we do about it right and i think that ultimately there's two things you can do about it one is you can basically say hey i believe the world's going to play out this way and therefore i'm going to

position myself uh via legacy assets to benefit from it or kind of be protected and uh and i know how to do that frankly um i have the expertise and skill set and experience to do it and i think the bitcoin answer is like hey the average person has no clue what's going on they're going to get absolutely racked here and like a decentralized programmatic monetary policy ends up being the solution because they can use as a savings account uh i don't know similar to your point i'm like i don't know which one ends up being the right answer but i think that uh it's kind of like gold i always say that uh the gold bugs and the bitcoiners 95 of the argument they see eye to eye and they're like there's all these problems in the legacy system this is really bad like people are going

to get hurt etc and then when they get to the end of like okay what's the solution gold uh folks are like, oh, it's physical, analog, sound money. And the Bitcoiner is like, oh, but we have this digital version, right? And so like, they're actually both even saying it's sound money is the solution. It's just two different assets. Agreed. So let me tell you one of the other things that has frustrated, not frustrated, that's not the right way to say it. Okay. The thing that I think that is most helpful, in my opinion, about Bitcoin and the rise of crypto is that it's helped educate an entirely new generation of people about money, about what it is, how governments influence it, the pros, the cons, a lot of cons, right? And I think that's a

very good thing. And the more people, the problem is, is that typically the people, the sound money people typically have not had a lot of capital. That's just the reality. Typically the money changers, the Keynesians, those are the people that are running things and they have political power because they have monetary power. This is an opportunity where a lot of people who now have sound money ideas have made a killing, have made an incredible amount of money. The amount of wealth that's been created, a lot of it's been lost recently, but the amount of money that's been created is incredible. And when I hear people who have made an incredible amount of money and they still have all of their money, or 98% of it, and they're encouraging other people to put

all of their money into this arena, I would very much like them to sell a little bit, put it off to the side, make sure they never have to go work for the man again, right? I mean, once you've had money, once you've had independence, the last thing you ever want to do is go work for somebody else again. So make sure you don't have to do it. Sell some, put it in dollars put it in gold you know you have experience you you've uh you've been doing this longer you've seen cycles there there is uh there's an education process and i think what you're describing is where most bitcoiners are going to end up uh i've got a friend jason williams who he says like hey you may want a couch you may want a mattress you may want some chairs in your home right like like you

need a car like there's some things that you need not only in from an investment standpoint but also just like enjoy your life as well. Yeah. And that's it. If you want to try to change the world, it's totally fine. I respect it. Go for it. You know, if you die storming the castle, at least you lived a good life. I understand it. But, but when you say you cannot possibly lose, I'm going to argue with you, right? I'm not going to accept the fact that you cannot possibly lose to no, but nobody is a guarantee to win. It just doesn't work that way. And so I think, you know, I have tried to use my interactions with the Bitcoin community to just bring a little bit of experience, right?

A little bit of sense, a little bit of common sense. Just, you know, don't bet it all. And if you do bet it all, that's fine. But, you know, be very careful encouraging other people to bet it all because it might not work out. Anyway, I'll just leave it at that. Brent, anytime you want to come, tell a message to the Bitcoin community. You're more than welcome here.

I, uh, I tend to think that, uh, uh, your view on the world is, uh, is obviously one nuance, but also to, uh, I, I have to say that, and I've told people this privately, but, but, uh, feels important to tell you is I respect that you've had an opinion. You've been very clear. So here, here's how I think the world's going to play out. Uh, and at times it looks like it's going in the direction you thought. And at times, frankly, it looks like it was trading kind of away. And, uh, you're one of the rare people who you just said, look, maybe I'm wrong.

Maybe I'm not, I don't know. But like, I still think this thing. And, you know, sitting here today looks a little bit different than it did in the middle of, you know, 2020. Right. And so I think that it's pretty commendable how you've done that. So I just want I appreciate it. But also, too, I think that you and the Bitcoin crowd, you agree on more than you disagree on, which is actually pretty cool to see. Well, I appreciate you saying that. The thing I'll leave on is, you know, I think over the last couple of years, you know, there's been a number of different issues, whether it's Bitcoin, whether it's COVID, whether it's government, politics, war, religion. There's all these, you know, there's all these different issues that are dividing us. And man, I'm never going to stop talking to people, even if they completely disagree with me, even if they hate me, even if I think they're idiots, even if they think I'm an idiot. But I'm not going to stop talking to them just because I totally disagree with them. And I think that's how really bad things happen. So I would encourage everybody to keep an open mind, talk to everybody, don't shut anybody out, you know, just try to try to try to keep it fairly civilized and throw a few punches here and there, but just keep it civilized.

I love it. Where can we send people to find you on the Internet or find more about Santiago? So I have a landing page with really just my contact information at SantiagoCapital.com. You can reach me via that. I'm pretty active on Twitter. If you type in Santiago Capital in the search engine, you'll find it. You can go to YouTube or Google and type in either Santiago Capital or Dollar Milkshake Theory, and you'll get more links than you know what to do with. So yeah, I think that's probably the best way.

My friend, that Twitter bio is amazing. Milkshake man. That is incredible. All right. I think so. Somebody else derogatorily referred to me as that. So I just thought I'd adopt it and make it a positive. That's the best way to handle the trolls is just say, yep, you're right.

Thank you. Appreciate it. Move on. All right. Well, thank you so much for doing this. And we'll definitely do it again as kind of everything continues to play out. But I appreciate your time. Sounds great.

All right. See you, buddy. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you're subscribed on Apple, Spotify, or your favorite podcast player. and if you're looking to try to transition to get a new job in the bitcoin or crypto industry we've got you covered head over to palmscryptocourse.com we've developed a curriculum with the top teams across the industry it's a three-week intensive training program with over

50 events packed into that three-week time period go to palmscryptocourse.com to learn more and i'll meet you guys for the next episode