Ep. 33: Brent Johnson – Santiago Capital Founder & “Milkshake Theory” Creator

Brent: Nobody goes into a boxing match expecting to not get hit. Like I think I think the US will get hurt, probably get hit hard, probably bleed. But the US has the ability to throw knockout blows that the rest of the world doesn't have. And if it comes to that, I think the US will use every tool in its arsenal to remain on top. So it doesn't mean I like it doesn't mean that's the way it should be. But I think that's the way it is.

Tarek: Welcome to Y'all Street. Today I speak with Brent Johnson of Santiago Capital.

Intro: 100% legit. So Chris, a cup of coffee. I just want to be the best. Thank you.

Tarek: Brent, Evan, would you like a cup of coffee?

Brent: Sure.

Tarek: Yeah, man, I am so bummed because I got you a milkshake coffee mug and it did not come in time.

Brent: So we're gonna have to cheers on the white mugs today.

Tarek: But I'm gonna send that to you.

Brent: This works good. It's better better than a milkshake.

Tarek: Anyway. We're at the TG macro conference in Nashville. You gave an amazing speech. I want to talk about that speech. Before we do that, I want to get into your background a little bit.

Brent: Im this really devilishly handsome guy from Puerto Rico. You know, I grew up in a little town in Nebraska, and kind of had small town roots, but big time dreams and kind of, I was always very interested in the world. I can remember we would have this little hometown newspaper. And it was a three town newspaper. One town was 12 miles west and one town was six miles east. And it just I just needed to get out of my one little town. So I would, I would read that newspaper like page to cover front to back just because I want to know what was going on. And, you know, I can remember reading newspapers and just I just I just love reading the newspaper. Yeah, no, I would come down for the news. I would come down in the morning from, you know, from sleeping, and we would read the newspaper, we'd sit at the kitchen table and read the newspaper. And so I was always interested in the world. I was I don't consider myself really a finance guy, I just really interested in what's going on in the world. And that kind of led me to markets.

Tarek: You were a basketball player, too, weren't you?

Brent: I was well, before that I was a football player. I wanted to be Terry Bradshaw of the Pittsburgh Steelers. But, you know, in high school, I was six foot five and weighed about 150 pounds. And that's not the right build for a football player. And I broke my left arm in fifth grade playing football, and I broke my right arm in eighth grade playing football. And I decided basketball was better suited for me at that point.

Tarek: And where'd you go to school?

Brent: Started at the University of Kansas, walked on there and was on their JV team for a couple years and transferred to a smaller school in Kansas City called Rockhurst where I graduated from. And that kind of set me up for everything after that.

Tarek: Yeah, how'd you get into finance? Was your family in finance?

Brent: Well, you know, no, except for Buffalo, my, you know, my father used to subscribe to some newsletters. And I can remember reading his newsletters, and he owns some gold and silver. And I remember he back in the early 80s, there was this whole metal detecting kit that people were on. And my dad would metal detect and go to parks and beaches. And remember, he found a dime one time that was worth that was worth $1,000. And I remember thinking, how can a dime be worth $1,000? Part of it was the silver content, part of it was the collectability of it. And that's that. So I always had this kind of this interest in, in gold and silver. And I think it all goes back to that. But really, the market stuff was a transition because in college, I thought I was going to be this great next great senator from Nebraska. And I was interested in politics. I was very interested in politics. I mean, I grew up very idealistic, very, you know, red, white and blue born on the Fourth of July type American, my little town had a Fourth of July parade.

Tarek: And it's like Shiner, Texas.

Evan: Yeah.

Brent: So, you know, I just thought, sure, no, why would you not want to be part of that? And I did, I was fortunate enough in my senior year of college, I did an internship in DC, and with a senator from Oklahoma, but still, it was a fantastic experience. But I, I wasn't there very long. And I realized, I don't want to do this. These. I thought it was all smoke and mirrors. And I was very disenfranchised with what I saw behind the scenes. But it was good that I did it because I learned a lot. I learned kind of how things work, how the sausage is made in DC. But I also learned I didn't want to be a congressional staffer. And I didn't want to move to Washington, DC. And so I had to pivot again and, you know, kind of move to the finance route at that point.

Tarek: How did that happen? And where did you go?

Brent: Well, I went, it's funny, my I had a couple of professors at Rutgers, which were very good. And they kind of steered me towards international relations, because they knew I had a big interest in the overall global world and situation and, you know, geopolitics, as one in Nebraska, as one in Nebraska would. And so they said, you know, you can do international relations for business or consulting or and I said, Yeah, that sounds like a pretty good idea. And luckily, I got into a very good business school is called Thunderbird, which was a global focused business program. And at the time, it was the number one ranked US business school for international business. And so I felt pretty fortunate to go to that. And that kind of set me up for, you know, eventually I moved to New York, eventually got a job on Wall Street. And the firm I started with Donaldson, Lufkin and Jenrett, which was kind of a mid tier, very entrepreneurial, very well respected firm, I felt extremely lucky to they told me no many, many times. But they finally said yes.

Evan: What did you do when you got there?

Brent: So I went through a rotational program. But it was but I was I knew I was gonna end up in the private client group, which is the high net worth private bank. So I'd be working with high net worth individuals kind of managing their personal portfolios. And that kind of suited my personality pretty well, because it was it was finance, but it wasn't hardcore finance. And you had to know about markets. And you had to, you know, understand the finance behind it. But it was really more of a sales role and marketing role. And you had to kind of figure out it was entrepreneurial, too. You had to build your own business, they give you a phone and a desk to build a relationship. Yeah, absolutely.

Tarek: And who was managing the book? Was that the team?

Brent: Also, you know, you start off and you're just by yourself. And but they have asset managers, both internal and external that we could allocate to, I say, so on the one hand, you're marketing, and you're selling, but on the other hand, you're a manager of managers. Right. And so it was, and that was, I liked that, because you weren't pigeonholed in doing one thing all the time. And it was very broad based. And you met some really interesting people. I my one of my favorite things in this business is when you meet somebody wealthy, what did you do? What does your business do? How did you make your money? And, you know, it's often something very obscure, right, that you never really think about, but they make them faster, quicker, cheaper than everybody else, and everybody needs it. Right. And so that's always been kind of interesting to me.

Tarek: And how long were you in that role? And where'd you go from there?

Brent: Well, so I started with DLJ in New York, I moved with them to San Francisco, in the early 2000. And because everybody was getting rich in San Francisco with the dotcom boom, and about six months after I got there, the market crashed. And, you know, for the next three years, I was trying to build a business while the market kept going down every day.

Tarek: It's really interesting, because we spoke with Tony last week. And he said the same thing, like everybody's careers started to pivot right around that dotcom boom, because either you were chasing or you were, you were struggling to make it work in the aftermath of the crash. So that was, I'm sure, a very interesting time. And Silicon Valley was still kind of early stages, Silicon Valley, because this is all pre YouTube, pre Facebook, pre everything. And I actually, I started my career in Silicon Valley in 2002. Okay. And so I was there not long after you got there. So maybe our paths crossed.

Brent: Yeah, exactly. No, it was it was a really interesting time. Because also at the time, what was kind of interesting for me was Credit Suisse bought DLJ right at the top of the market. But Credit Suisse had always been my number one firm, for whatever reason, I thought, you know, Credit Suisse, it's got this Swiss sophistication, it's 150 year old, you know, bank, and the masters of the universe work there, you know, the gnomes of Zurich, all that kind of stuff. And, you know, you start meeting people there, and you realize they're smart, but they're not smart as you know, they think they are. And they're not as smart as you initially thought that they were. But at the same time, also Credit Suisse happened to be going through somewhat of a crisis, because there was some, there was some stuff going on with how they had handled IPOs. One of the most prominent investment bankers at the time that took so many tech companies public was a guy named Frank Cotrone. And he got in trouble for some paperwork that, and some emails that he sent that the bank didn't think he should have sent. And so then there was kind of this, I don't know, lawsuit and infighting between John Mack, who was the CEO in New York, and Frank Cotrone, who was the most famous banker in Silicon Valley. So every day, there was an article on the front page of the paper of Credit Suisse. So it was an interesting thing, because publicly, Credit Suisse was being very much maligned. But every single meeting we went into, the executives, the CEOs, the entrepreneurs would say, Credit Suisse is the best firm, Frank Cotrone was the best banker, he helped us more than anybody else. So it was kind of interesting to see both sides of it, right?

Tarek: Your role there primarily was wealth management?

Brent: Yeah, it was basically finding wealthy people and convincing them that they should put their money with Credit Suisse. And then once we got it, we would manage it.

Tarek: And how long did you do that?

Brent: So I did that until 2009, shortly after the global financial crisis.

Tarek: What was it like managing relationships during the global financial crisis?

Brent: Well, it wasn't easy. And I won't say that I got it perfect. But that really kind of helped me a lot for the future and what I mean by that is that I wanted the song the story is long, but I'll tell a very quick version of it as I had a very fortuitous meeting in 2006 or seven before the crisis. And that meeting kind of opened my eyes to the fact that maybe everything in the market wasn't as copacetic as the prices indicated. And it opened my eyes that my the managing directors who sat above me were not quite as smart as I thought that they were. And so I kind of started figuring out that I had to figure this stuff out for myself. So up until that point, I had kind of drank the Kool Aid for lack of a lack of a better way of saying it, you know, whatever they told me to say I said, and I kind of accepted it as true and didn't do all the deep dive digging myself. But subsequent to that, again, very fortuitous meeting, I started doing that myself. And I just I realized I had to figure this stuff out for myself. Because, you know, when you're dealing with other people's money, that's a pretty serious thing. You shouldn't take it, you know, unseriously. And I always take I always say I take my job seriously, but I don't take myself very seriously. But that was when I realized I really had to do a lot more work than I had because up until that point, you know, through school through taking, you know, getting, you know, you have to take a series seven exam, you have to get licensed, all this stuff. I was always very good at, you know, memorizing and remembering stuff long enough to do very well on the test. But I didn't necessarily internalize it all and really understand it. But that was the point where I realized I have to understand it. And so so I had to go back and kind of teach myself the basics.

Tarek: Yeah, at that time, were you managing your own money?

Brent: A little bit a little I didn't have that much of my own at that time, right? So I was managing a little bit of my own and I there was another thing that happened right around the same time is the number three guy in all of Credit Suisse from Zurich was in San Francisco, he was kind of doing this road trip around all Credit Suisse offices around the world because it was during the financial crisis, it's kind of reassuring everybody. And after, you know, he gave his presentation, there was a short Q&A. And somebody asked him, well, how are you investing your money? And he kind of hemmed and hawed a little bit and then he kind of started answering and it wasn't allocated in the way that we were being told to tell our clients to allocate money.

Tarek: Interesting.

Brent: And I thought that was wrong. Right? I thought, well, that's not the story that, you know, we're telling our clients, why are you doing it differently than what, you know, we're being told we should be telling our clients. And that was kind of the beginning of the end for me. And I knew that I had to figure out a different way to do it. I liked what I was doing. And Credit Suisse was my dream job, but I realized it just wasn't for me anymore. So then I started trying to figure out what my escape hatch was going to be.

Tarek: What was that learning curve for you like when you made the decision to say, look, I need to figure this out for myself, I need to have my own outlook on the financial markets? What did that journey look like? Was it reading books? Was it finding mentors? How did how did that come about?

Brent: I mean, it was all of the above. That's when I started going to conferences, I started to listen to people that perhaps I hadn't listened to before I went I literally I can remember being up at midnight, one o'clock am on blog posts reading, it's where I come across Austrian economics. I just figured that was a school in Vienna, right? But no, it's like a whole branch of economics that kind of have a different base of thinking. So I kind of went down that rabbit hole and learned more about alternative asset managers and private equity and all of this stuff that I probably should have known years before, but didn't. I kind of had to teach myself. And here's the interesting thing is, it's not that I had bad teachers before, but I just never just really resonated with me. But when I kind of went back and kind of broke it down from first principles and kind of taught myself how it actually works. It clicked.

Evan: What made you so interested in it as you were not before? Like was it the fact that you wanted to do your own thing and you couldn't rely on anybody else?

Brent: Well, it was a couple things. So that was part of it. I always kind of wanted to eventually have my own thing, just because my dad had been a sales guy, but he was always his own boss. And he had a lot of autonomy and didn't really have to answer anybody. That was always kind of appealing to me, right. But one of it was that the I at the same time that I came to the conclusion that the people above me weren't as smart as I thought they were. And perhaps they were not didn't have our clients best interest at heart as much as they have the firm's best interest at heart. I also came to the conclusion, which to me now it is so naive, that I didn't know this. But and but when I realized I was like, Oh, yeah, of course, everything that the bank sells to clients was designed to make money for the bank. It was not designed to make money for the client. Now if the client made money, that's a fantastic side effect. But that wasn't the primary secondary.

Tarek: That wasn't the key.

Brent: That wasn't the primary goal, right? And of course, that's the way it is the bank's there to make money for the bank. But I when I felt like they were putting their own interests above the clients, I just realized there's got to be a better way than this. And it's not that the people that there are bad people, maybe they're a bit misguided, maybe they maybe not everybody understands what's happening. But it's just that's, you know, you know, as firm starts off small gets a little bigger, and they start putting these rules in place to protect what they have. And pretty soon you have this big conglomerate that is more worried about themselves than they are the original mission, right? And I just realized that even though I liked the prestige of a big firm, I just, you know, I didn't like who I was being there.

Tarek: And so when you made the decision to make this transition, how what was the map like for you?

Brent: Yeah. So I was again, I'm very fortunate. I've been very lucky in my life to meet people who kind of played a key role at certain times. And when I was at Credit Suisse, I had worked with a friend of mine who had left a couple years before me and set up his own firm. And he set up his own firm because he kind of wanted to do things a little differently as well. And so when I started to think about where to go, I started, you know, I talked to a couple of other big firms. Again, here's the thing is, if you leave a firm like Credit Suisse, and you go to Maryland, or UBS, or Goldman, or Morgan, Sam, you get paid a lot of money to move your business over there. And it's pretty enticing. But I, as I started to go down that path, I realized, well, yeah, I'm gonna have money in the bank, but then it's going to be the same issue as Credit Suisse, but I'm just gonna have a different business card. So that's when I started talking to my friend, he's like, just come over here, man, you're gonna have a lot of autonomy, we're gonna have a lot of fun together, you know, and, you know, we'll be able to kind of build something together. And so I did that. Ultimately, I passed up, I passed up the big check, which was hard, because I just had a son. And I left money on the table at Credit Suisse, because when you leave, you lost some stock options and stuff. But long term, it was for the better.

Tarek: Let's actually pause there and talk about that decision process. So you're sitting across the dinner table with your wife, you have a newborn baby, you have the opportunity for a big check, and you turn it down to go do your own thing.

Brent: It was hard.

Tarek: I just need to kind of dive into your mind there. Like, what were those discussions? Like, what was the reaction? Like, there were a lot of people listening that I'm sure have ambitions, but are afraid to take that step or take that leap?

Brent: Well, you know, I, the year so 2007, I'm trying to remember this. So 2007, I had made more money than I'd ever made in my life, or no 2008. So and I remember, because I so I left in 30,000 a year, yeah, something like 30,000. And I and so luckily, like I had a little bit put away, you know, because of that. So that made it a little bit easier. It made it made it a little bit easier to leave the money on the table that I left, it would have been even harder if I had tried to do this two years prior. But listen, it's not easy. I mean, San Francisco is a very expensive place to live. You know, you know, like I said, I just had a son, my son, my wife had been previously working, but now was going to take some time off. And so it was hard.

Tarek: And the buffer that you had worked to create, you knew you were going to bleed into because, you know, you were walking away from the paycheck. So there was risk attached to that.

Brent: Oh, there's been a thing is, in this business, it's all about your relationship with your clients. And whereas you think they're going to follow you, you don't really know until the decision is put to them, and they have to actually sign the paperwork, right. And luckily, so what had helped me was, yeah, I mentioned that fortuitous meeting that I had pre global financial crisis, it opened my eyes to the potential for a crisis. Now, I wasn't smart enough to figure out that the banks were all going to fail, and I should short, you know, subprime, but I was smart enough to reposition their portfolios to a more conservative manner, which without going into too much detail actually hurt my payout at Credit Suisse. But by repositioning them, so that I mean, we lost money in 2008. But we didn't get crushed, like a lot of people did. And the fact that we had done that helped my credibility with the clients, right. And if I had done what the bank told me to do, we would have lost a lot more money. And my clients knew that. And so that helped. So then when I left, you built trust, I built trust. And so then they went with me. And you know, thank God they went with me because it was hard, right. But, but ultimately, I just, I got to a point where I could not walk through the doors at Credit Suisse anymore. I just felt wrong, just felt dirty.

Tarek: When you left Credit Suisse to partner up with this other gentleman, did you really dive deeply into this ongoing education and understanding the markets now that you are going to be actively managing money? And you knew that what the big banks were doing was, you know, not supportive of their clients, at least not primarily. How did that impact your approach to business and your approach to your profession?

Brent: Well, I think part of the reason that, you know, I ended up joining, he was a very good friend of mine still is that it was going to be fun. And it was going to be interesting. But we were also had a little bit of a, I'm not gonna lie, we had a little bit of a chip on our shoulder, right. And we use that to our advantage. And, you know, we said, Listen, we're different than those guys. And we don't, we were at those big firms, and we left there because we figured there was a better way. And we actually used it to our advantage. And we could do things that the big banks could not like we could say things that the big banks just couldn't say, right. And luckily, and we were right. We actually did a pretty good job over a couple of years. And I think my friend, I think I added something to him that he didn't have, because he was more of a big picture strategic business builder guy, as opposed to a markets guy. And so as I was becoming more of a markets guy, as opposed to just a marketer, I helped fill that role.

Tarek: And what were you thinking about the markets at that time? Because this would have been 2009, 2010, coming out of the crisis.

Brent: So we were thinking you had to be invested, and you had to be long, but you couldn't just do it blindly. And you had to have some kinds of protection. And because we didn't think it was over yet. And it's not that there was another big crisis that happened immediately. But if you remember, the markets kind of went sideways for I mean, they had a big coming up like in 2009. But then, you know, 2010, 11, and 12 markets kind of went sideways, there was a big crisis in Europe. And so, you know, the fact that we were, we were not just buy and hold investors, we weren't big traders. But we thought that there was times where you should have hedges on or that you should have a cash allocation. And one of the things is we felt that you should not charge a different fee on different asset classes. At the big firms, you get charged different fees if you're in a hedge fund versus a fixed income fund creates conflict of interest creates a conflict of interest. And so you know, we would say we're going to charge you the same thing on cash that we're going to charge you on a hedge fund. And that removes that conflict of interest. And we're just going to do whatever we think is the best for you. And part of that fee you pay us is for implementation. And part of the fee you pay us is advice. And sometimes that advice is to sit in cash. And that really resonated with people who had gone through a 20,30,40, 50% drawdown in 2008 and nine.

Evan: And that's did that story resonate with clients that us versus the bank story, especially right after 2008.

Brent: Yeah, and I and we don't don't get it wrong. Like we use that as you should.

Tarek: Yeah, counter position.

Brent: But the thing, the thing is, we believed it, too.

Evan: Yeah.

Brent: And we still believe it, like, well, it didn't feel wrong to say it, because we really did believe it, we kind of felt like we were on a mission a little bit. It's probably the right way to say it.

Evan: It's a good way.

Tarek: And that that road for you ultimately did lead to gold, right? Because and if I remember correctly, I think the year was 2015. The first year that you were on real vision, that's the first time that I had become familiar with you. And at the time, you I think you were with Santiago capital. Was that the same firm?

Brent: Well, so at the time, I had so I had just set up Santiago capital as a side business to the overall wealth management business, because I wanted to do gold in a certain way that we were not able to do either at the previous big firms or this. So it's called Baker Avenue asset management. So if anybody's out there listening is interested in overall wealth management business, that isn't mine. Baker Avenue in San Francisco is fantastic, registered investment advisor, but my friend, I told my friend, we needed to have a gold solution. And we needed to do it a little differently than just buying an ETF or mutual fund. And he was so busy building Baker Avenue that he's like, well, if you want to build it, you can build that as a side business and just keep helping me with the overall Baker Avenue. So that that was the that was how Santiago got started strictly just as a gold as a gold business on the side. And then over time, my business got to be big enough that I transitioned everybody from Baker Avenue to credits or to Santiago. And then I turned around and hired Baker Avenue as a sub advisor, which I still have. So the relationship on a day to day basis didn't really change. But the legal, the legal arrangement changed a little bit.

Tarek: You know, it's interesting. Like I said, I was introduced to you on Real Vision. And the if I remember correctly, the subject of that interview was primarily about gold.

Brent: Yeah.

Tarek: And so my my sort of perception of you for the first few years prior to us meeting about 10 years ago was, you know, you were you were a gold guy. The irony of that is you fast forward to today and you're known for being the dollar guy, not the gold guy because of the milkshake theory. Right. And I look, there's a ton of material on the milkshake theory out there, especially on YouTube. And I encourage everybody to go go watch those videos. But can you give us just like the 30 second overview so that we have a baseline to talk about what you spoke about at the conference?

Brent: So I'll say I'll say the I was a gold guy and I still am a gold guy, but I was a very different gold guy because I didn't come up in the gold world. I found gold. When I started doing my own research and analysis, I came across the gold and I came across the Austrian School of Economics. And I started interacting with more libertarian minded people. And, you know, of course, gold is always a part of that. And it was such a breath of fresh air, because I felt like they thought differently. They weren't pigeonholed into traditional dogma that comes with Keynesian economics or what you're taught in business school. And so I really liked that. And I thought it was a key part of a, of an overall portfolio, but I was never, you should be 100% in gold, I was never one of those guys. So it was always part of a overall diversified solution. So one of the things that I really struggled with was a friend of mine, Raul Pal, who was the one of the founders of real vision, you know, said in two, I think it was early 2014, that he thought the dollar was going to go on a big run. And, but he's also a gold guy. And it didn't quite make sense to me, why is he thinking the dollar is going to go higher? If, if he's a, if he's bullish on gold, but lo and behold, the dollar did it made a huge move in the second half of 2014. And that's, again, when I realized, okay, I'm missing something, what am I missing? So I kind of went to a lot of my friends now in the gold world. And I started saying, what are we missing here? Why isn't you know, everybody's saying the dollar is going to go down, and it's not and they didn't want to hear it. They said, Oh, it will, it has to. And, you know, I realized, and through that, I realized, they were as like dogmatic about their views, as the Keynesians were about their views. And they were, they were, in some ways, they were as close minded as the traditional finance guys. And there wasn't room to kind of cross pollinate. And I, that just kind of drove me nuts, right? That was one of the things that initially drove me to the gold world. And so that again, I had to figure out, what am I missing? Right? What am I what, what don't I know that I that I should have known. And essentially, what happened was, I used to, this sounds silly, but I swear to God, this is how it happened. I used to go into the office on the weekends to work. I was never somebody who worked from home, if I had work to do, I went to the office, I did it. And when I came home, I didn't work. And so there was one weekend, I was in the office, and I was trying to like, think of everything from all these different angles, because I was missing something. And I literally went into the conference room, there was a big table, and I put, I wrote, I got that all these big sheets of paper, and I wrote like central banks names on them. And I would go, and I would literally go stand on the other sides of the table, try to look at it from the ECB's point of view, look at it from Japan's point of view. And then I would look at it from a bank's perspective and an investor's perspective. And then I said, well, I just realized the thing I'm not doing is I'm not looking at it on a global perspective. Everything I'm doing, I'm looking at it from, well, I'm looking at it from different perspectives, but I'm always looking at the United States. I'm never looking at Europe, I'm never looking at Japan, I'm never looking at China. And that's when I realized that's what I was doing wrong. I was focusing on the United States. And when you focus on the United States, then and now, and you just go down that rabbit hole, and you look at the amount of debt and the budget deficits and the inequality and the, you know, the people that have been disenfranchised and the political infighting, like the only conclusion you can come to is that this is going to end in disaster, right? It's just it just doesn't look good on a fundamental basis. But the problem is, is if you do that same level of analysis on China and Russia and India and Turkey and France and Brazil, you come to the same conclusion. And I realized I was looking at things on an absolute basis rather than on a relative basis. And currencies trade on a relative basis. And that's when I realized that not only do all the other countries have all the same problems, and in many ways, more and deeper problems, but they don't have near the advantages that the United States has. So if you list all the problems, all the countries have them. And if you list all the advantages, the United States advantages, dramatically outweigh all the other countries' advantages. And I was like, well, that's it. That's why the dollar is outperforming, because it's the best of all the bad options.

Tarek: And that was interesting at that time. Because if you looked at the gold chart, and you just changed the denominator, so instead of looking at gold, just priced in USD, you looked at gold priced in yen, gold priced in euro, it was breaking out on every global chart, except in dollar terms.

Brent: That's right. And so that was one of the things that helped me realize what my mistake was.

Tarek: Interesting. Yeah. And, and so much of your theory then is predicated on the idea that, you know, the dollar is the cleanest, dirty shirt in the laundry, and it's going to remain so and, and probably get stronger over time. Isn't that right?

Brent: That's exactly right. And I thought, that's when I again, you have to remember, like, I was still teaching myself stuff. And I was still trying to figure all this stuff out. It's not like I realized that the dollar was the cleanest, dirty shirt. And all of a sudden, the whole milkshake theory just came to me, boom, just like that, right? This was a progression over time. But what I realized was that what often would either cause a crisis, or what would happen as a result of a crisis is the dollar would rise versus these other currencies quite a bit. And it kind of makes sense when you think about it, because that's also about the time that I discovered the euro dollar market, which I had never really known about. And the euro dollar market is the large market of $4 outside the United States between parties that have nothing to do with the United States. You know, up until then, I probably didn't even know that market existed. And that was like a big light bulb moment. Because when you realize that India owes Turkey in dollars, you know, that means there's demand for dollars, right? But that's it. But that same relationship doesn't often work in for other currencies. In other words, I don't know too many Philippine fishermen that Oh, you know, Chile, you know, you know, Japanese yen. You know, they just maybe it exists on some very small scale, but it exists on for the dollar on a huge scale. And that's demand.

Tarek: Yeah, it's interesting, because I was fortunate to see your early version of your presentation for the milkshake theory. And one of my comments, if you remember at the time is that I spent a lot of time living in Argentina and in Paraguay. And the dollar was gold in those countries. And you would you would pull Argentine pesos out of the ATM, and you'd go to the local t shirt shop, and it'd be a black market to exchange those pesos for USD. And none of the Argentines kept pesos under their bed, they bought USD. And you realize and there was also there was the formal market, and there was the black market, and they traded separately. Because whenever there were shortages of dollars, the dollars were bid up in the black market. And that's what people wanted. And that's just a small sort of anecdotal experience. But that happens all over the globe, that people want the dollar, and it bids it up. And it happens in the capital markets as well.

Brent: Yeah. And so it's funny, because, you know, going back to 2007, when I had that meeting and started doing my own analysis, and I realized things were not good, like all these preconceived notions I had came crashing down. And then, you know, I started learning about gold and had all these preconceived notions. And then I kind of discovered the euro dollar market and realized I was only focusing on one country. And again, all these preconceived notions I had come tumbling down. It's kind of like when I was a basketball player and had to reinvent myself as a business guy, right. And so I've had that happen several times in my life, or you just have to, if you're honest with yourself, you got to just have to realize you were wrong. And the beautiful thing is once you accept that you were wrong, everything gets so much easier. Right? Nobody likes to be wrong. I don't like to be wrong. I like being right. But if you can, if once you understand, you're not always going to be right. And if you can, you know, recognize when you're just being stubborn, it makes things so much easier.

Tarek: So the just so people understand the reference to the milkshake that is from the movie, There Will be Blood with Daniel Day Lewis says, I will drink your milkshake referring to oil in the ground, like he's gonna take the oil. I do find it a little bit ironic that the name of that movie is there will be blood. Because that is your overarching thesis, isn't it?

Brent: Oh, that's exactly right. Yeah. So I've always said, Listen, this is going to end really, really badly. And there's going to be many battles along the way. And people are going to get bloody, including the United States. I, you know, again, I think the United States wins the relative game. But it doesn't mean they don't get hit. The the analogy that I've used a lot, and you might appreciate this, I think you're a little bit younger than I am. But you know, I'm a child of the 80s. And I love 80s music and 80s movies and 80s sports figures. And, you know, I think it was like 1983 or 1984. There was this boxing match between Marvin Hagler and Thomas Hearns, which is one of the greatest boxing matches in history. So if you haven't seen it, everybody should go watch it. But in the very first round, Thomas Hearns hit Hagler so hard that he had this huge cut above his eye blood all over his face, and they almost had to stop the fight. But he somehow hung on, they got the bleeding stopped. And in the third round, Hagler knocked out Hearns. And so Hagler won. And that's kind of the analogy I use is I expect the US to get hit. Nobody goes into a boxing match expecting to not get hit. I think I think the US will get hurt, probably get hit hard, probably bleed. But the US has the ability to throw knockout blows that the rest of the world doesn't have. And if it comes to that, I think the US will use every tool in its arsenal to remain on top. So it doesn't mean I like it doesn't mean that's the way it should be. But I think that's the way it is.

Evan: Did we see that happen in 2008? Did we have the dollar appreciate after the global crisis kind of broke out?

Brent: Well, it's actually it rose into the crisis. And that's kind of what caused the crisis is there wasn't enough dollars to meet the dollar needs. And it caused a liquidity crisis and people had to sell assets to raise dollars. And so and when people start selling assets to raise dollars, and it doesn't solve the problem, you have to sell more assets to raise dollars, and you get it was basically a global margin call on the dollar. And so yeah, we've whenever we've seen any kind of crisis like that, over the last 4050 years, it coincides with the dollar going higher. One interesting thing that happened last spring, and I know you didn't ask and ask this question, but I think it's a good opportunity to explain it is that for me, part of the thesis was that the United States sucks up capital from around the world, and it finds its way into US markets. And so in many ways, the United States is the piggy bank for the rest of the world. That's where their excess capital ends up more than anywhere else. So if a crisis starts to develop, either in their home economies or in the US, they will then often tap that piggy bank, because that's their savings to send back home to shore up any problems they're having back home. And so when that happens, what happens is foreigners sell US dollars assets, they get dollars, and then they sell the dollars for their home currency as it gets sent back. And then when that happens, initially, the dollar will fall because they're selling the dollar buying their own currency. But if assets fall far enough, then the euro dollar market, the demand for euro dollar, when assets fall far enough, the crisis starts to spread and it becomes a global issue. Then that euro dollar market starts to demand to get paid in dollars. And that's when the dollar reverses and rises. So what we saw last April was that when Trump announced the tariffs, asset prices started going down and the dollar went down. And a lot of people said, that's never happened before. That shouldn't happen in a crisis, the dollar should rise. But in reality, that always happens first. And then if the crisis gets bad enough, the dollar turnaround goes higher. And if you look at September of 2008, leading up to the financial crisis, that's exactly what happened. There was a two week period in September of 2008, where the dollar index fell like 5% over a 10 day period. And then when things got bad enough, it rocketed higher. And in March of 2020, during COVID, the dollar fell 5% over a 10 day period at the end of February. And then it rocketed higher as the crisis got worse. So actually, what we saw last April was very much in line with what we what we typically see in that environment. If Trump had not pivoted and taken his foot off the neck of the global economy with tariffs, I think that we would have seen the dollar reverse very quickly and go higher. And the interesting thing is the dollar is basically where it was in April. It hasn't fallen significantly since then. It's kind of gone sideways. And part of the reason is there's just so much demand for US dollars still.

Evan: Do you think the Trump administration wants a lower dollar?

Brent: I think they want it to be a little bit lower, but I don't think they want it dramatically lower. This is what I think a lot of people get wrong with Trump. I think he doesn't want to crush China. He wants to keep China in a box. There's two things I think that Donald Trump wants more than anything in the world. He wants his face on Mount Rushmore. And he wants his face on the cover of the New York Times saying, you know, he's the king of this fantastic global economy that he has renegotiated, right? You can't get your face on Mount Rushmore if China usurps the United States under your watch, so he has to keep them in a box. But he also cannot get, you know, be this great dealmaker if China collapses, because you're not a great deal dealmaker if you crush the other guy. You're a dealmaker if you figure out how to all work together and everybody prospers, right? So if he crushes China, that causes a global crisis, which doesn't make him look very good. It would actually be easier to crush China than to keep them in a box.

Evan: How would he do that?

Brent: You could cut them off from dollar funding.

Evan: Just sanctions like Iran?

Brent: Just sanctions and just say, you know, no more trade is going in or out. You create an embargo. We're not buying any more of your goods. Now that would absolutely hurt the United States. We would get bloody, like I mentioned with the with But China would get knocked out.

Tarek: That's a great segue, though, into some of the themes that you talked about in your speech, which were the Big Beautiful Bill and the Genius Act. Part of the reason why you can't cut off China is that we're so codependent upon the resources from China. So can you expound on that a little bit?

Brent: Yeah. So what's going on with China now, and this is where I was saying, I think people misunderstand what Trump is doing. He thinks it was he thought this is first term, and it was kind of proven during the COVID crisis, that, you know, you shouldn't just always buy this, the cheapest option, you know, there are national security needs involved in certain goods. And so he thinks the United States should be self sufficient when things that relate to national security. And that's what the Big Beautiful Bill is about, you know, kind of creating a US economic renaissance on an overall basis. And a subset of that, we talked about the Office of Strategic Capital, which is located within the Pentagon, which I always say should give you a little signal value on how seriously they're taking this is they have identified certain sectors, specific markets and specific natural resources that they need from a national security perspective, to be self sufficient. And so they are trying to build out those markets from either locally sourced or friendly sourced regions. Because right now, we need those resources from China. China has those resources, but they don't have advanced chips and some other technology, the United States has. So we have kind of this prisoner swap going on, we agree to send them certain technology needs, they agree to send us natural resources and some pharmaceuticals. Meanwhile, behind the scenes, both sides are working feverishly to become independent.

Evan: Yeah.

Brent: And when one of those sides, whether it's us first or China, sir, first, whichever side becomes self sufficient first, that prisoner swap stops. And that's when we get the big game, right. And so that's why I say, you know, what Trump is trying to do is negotiate that in a smooth, it can't be done smoothly, but in as smooth a manner as possible. Because if you if you if you slam the curtain down right now, both sides are going to get really, really hurt. And so I think they've agreed to have this mutual detente, and continue to exchange prisoners while they they work behind the scenes to become self sufficient. And the big beautiful bill, and the Office of Strategic Capital are a big part of that.

Tarek: What about the Genius Act?

Brent: So the Genius Act that that relates to stablecoins, they basically codified into law, the ability for stablecoins to not only flourish, but potentially even be part of an official solution from the United States. And when I say solution, it's a new digital system via which dollars could flow around the world, which would somewhat potentially bypass the current euro dollar system, and Swiss system, which we talked about earlier.

Tarek: Explain this as though you're explaining it to like an eight-year-old. So that people can really follow along with what you mean here.

Brent: Yeah. Okay. So think of you want to go from, we're in Nashville right now, and you want to go to Atlanta, right? We can get on a couple different ways to do it, you can probably take a train there. And maybe it's not the most efficient, and it's kind of slow, but we could eventually get there. We could get in a car and drive on the highway, get there. And, you know, cars probably faster than a train. But, and, and, you know, there's speed limits there, there's rules of the road, there's a way that everybody understands of how that works. But we could also, you know, have a helicopter, take us down there, right? And maybe someday we will have little drones that just pick us up and take us there, you know, at the speed of, you know, speed of sound or something.

Tarek: Elon thinks we're gonna fly.

Brent: And Elon thinks we're going to fly. And so this is just a new channel. It's a new way of getting to the same place that's quicker, faster, cheaper, and that the US government would have more control over. So think of it as the plumbing of the financial system.

Evan: I think a lot of people thought crypto and stablecoins was going to get us away from government oversight and government's hands being in it. How has that switched into what you're saying that governments are going to be able to look over your shoulder more?

Brent: This is the big irony to me is that, you know, Bitcoin proved that digital assets can proliferate around the world and you don't need a central government or central authority to prove the value of whatever you're sending.

Evan: Yeah.

Brent: And many people thought that this would then create a freedom of money that was disassociated with the state. And that would actually disempower the state. And we could potentially move into a market where the state had significantly lost power and everybody could just trade amongst this money among themselves without having the state involved. And it's not that that's impossible. But I mean, it's when the state gets threatened, the state fights back. And so what I think has happened with the stablecoins is the US saw what was happening. They saw the power of it. But they also saw an opportunity to where rather than fight it, they could co opted. And the amount of money involved is so big that the people who were potentially initially creating it to fight the state, I think have realized if they cooperate, the state, the profits are so enormous, that why why would we fight the state when we can just help them implement it themselves. And so I think that's what's happening. I think I think it's a combination of those who started off as a revolution to the state monetary order, realize the state's more powerful than they thought. And the state realized that, you know, this private technology that they developed could actually help them create an even more robust system than they already had.

Evan: How does this apply to your global stance? I mean, it seems like other governments would want the globally used currency or stablecoin to be theirs. So are we going to get fights within countries for that?

Brent: Yeah, so I, we put out a report back in October that laid out our overall thesis on this. And then we just put out one last week that talks about all the battles that are now going on in the little different fiefdoms surrounding this whole issue. And there's, there's numerous battles going on. And they're just like knife fights, because, again, the profits are so huge. And the potential control that it involves is so is so great that everybody wants a piece of it. I have no doubt that, first of all, I know for a fact that other countries are terrified of these US dollar stablecoins, they've said as much, because they realize that, you know, if you're in Turkey, and you can hold a US dollar balance, you would rather hold that than holding a lira balance. But if people start selling lira and holding US dollars, that, you know, puts downward pressure on the power of the Turkish government. So they will definitely fight back, I think some countries will be more successful at it than others. And some will issue their own stablecoins in their own attempts to battle this. The problem is, is once it gets to the stage where the other country starts to fight back, it's kind of a losing battle one way or the other, if they if they fight back, and they outlaw them, well, then they're hurting their economy, because other economies are going to work quicker, faster, more efficiently, cheaper, and so they won't be able to compete. But if they allow these stablecoins to flourish, it kind of starts to cede their own sovereignty over their local economy. So it's, it's, it's pretty ingenious, like they call it the genius act. And I always make this joke that usually when you see a law and it has a name, you can just assume it does the exact opposite. I think this name is actually appropriate in this case.

Evan: And does China not have an ability to make a stablecoin that rivals the US? Or does China's capital markets just not even compete today?

Brent: So that's, that's the issue is that, of course, they have the ability to do it. And they already have the EU on and they rolled out a few test cases. And listen, operationally, it works. They're not these stablecoins are not that sophisticated, and not that hard to actually create. What's hard to create is the network and the trust that the other person will accept it when you want to give it to them. Right. And I know many people will say, well, we don't trust the United States. Okay, fair enough. But which government do you trust more? And it's not you don't even really have to trust the government, you just have to trust that the other person will accept that currency. And the US dollar is far and away the most trusted currency in the world. Doesn't mean it's trusted. It means it's trusted more than any other it's again, it's gets back to a relative gain. And you know, the other thing that's starting to pop up also is you know, there's commodity back stablecoins, there's gold stablecoins, I think that those will be very popular. But I think this is a separate battle. I think you could, I've said for a long time, the dollar can stay on top from a, you know, individual country currency perspective, and gold can go to $10,000 $20,000. It's, it's just a separate battle.

Tarek: It's interesting, because Tether, in particular, I think bought more gold for its gold back stablecoin than any of the other central banks. Over the last couple months or something, I may be getting that wrong, but it's a huge amount of gold that they have been accumulating. And it looks as though there's no end in sight. So it does make me wonder, because gold is truly the global currency. Does a gold back stablecoin really put gold back into a position where it is more competitive than it would be if you're just dealing with like physical gold coins? Or is it that because a gold back stablecoin can't be used to pay off debt, no matter what, you're going to still have to be selling gold back stablecoins to buy USD back stablecoins, if that's the settlement?

Brent: That's right. That's right. And so this is the other thing is this whole euro dollar market, the way dollars get created, the way any currency gets created in our in our modern system is the base money can be printed, but after that, it's all loaned into existence. So every time a new monetary unit gets created, new demand gets created as well. And this euro dollar market has largely been loaned into existence. And it's, I mean, it's hundreds of trillions large, I mean, it's, it's enormous, it's unfathomably big. And so there's that much demand for dollars. And so while it could happen for yuan and yen and reals and stuff, the size of it is just dramatically smaller than the euro dollar. And as a result, the network is smaller. It's kind of like when people say, I'm sick of Twitter, I hate it, I'm moving over to this new social media program. Yeah, there's other social media programs, and they work and they're operationally, you know, they're kind of cool, and they're fun. But the volume is on Twitter. And that's why everybody ends up back on Twitter, because that's the network.

Evan: And so when you were saying a get loaned out, are you referring to like the fractional reserve banking style? Will you explain that briefly for people?

Brent: Yeah, I mean, essentially, what we have is a debt based monetary system where you have currency and coins and, and the reserves of the Fed, that's called base money. Everything else gets loaned into existence using that base money as collateral. And so you get fractional reserve. And, you know, over time, they've actually removed the fractional per se, you don't even have to keep any reserves anymore. But it's all but it's basically a loan on a loan on a loan, it's a big daisy chain of new money being created. And as long as money is circulating, and as long as banks and financial institutions are extending credit, the system grows, and it's fine. Well, the minute it starts to contract, it contracts very fast, because there's nothing actually there like a bank run, like a bank run.

Tarek: Well, and this was a learning for me during the great financial crisis is everybody focuses so much on how much dollar printing there is. But very few people spend time thinking about how much dollar destruction there is, when there are debt defaults, and that contraction takes place. And that ultimately creates a bid for the dollar. The interesting thing is, when you look at London, in the London bullion markets, the allocated pool of metal is also lent out, and no one knows exactly what the reserve is, that that's actually predicated on whoever the bank is, that's participating in the marketplace. So the same thing actually happens in the gold market, and you can have those swings as well.

Brent: So I'm glad you brought that up. Because, you know, one of the the fractional reserve nature of futures trading, right? Millions of dollars get traded, billions of dollars get traded, where the paper is changing hands, but the metal is not right. And the argument has always been there's many more claims out there than there is actually ounces, rehab application, rehab application. And so if and when everybody asks for the gold delivery, there's just not enough to go around, and the price is going to go through the roof. The exact same dynamic exists with the dollar and all fiat currencies. And that's, that's kind of what we saw in 2008 and 2020 is people are, you know, the rehab application is, is failing, and everybody's asking for the actual physical, you know, the actual money, and there's just not enough to go around. It's a bank run, right? And so the price in that thing, skyrockets.

Tarek: Yeah, if you had to guess, or to project what the next five to 10 years looks like, or even just the rest of the Trump administration, what are some general themes that you would share with the audience?

Brent: Yeah, so I think, on the one hand, I think Trump is a big part of this, but I also think it would be going on even if Trump wasn't here. Trump is like a very good actor in the play, but the play is going to play out whether regardless of who's playing the role. And what I mean by that is I think for the last 5060 years, we lived in a world that was predicated upon who can produce the widget, the cheapest, the fastest, the most efficiently get it to market, right? And there was a globalization, everybody's cooperating. And it was really about, you know, just in time inventory and maximization of profits. And that worked for a really long time, but I think it got to an extreme. And I think the pendulum is swinging the other way now. And it's no longer about who can produce it the cheapest and the quickest. What matters is who can who can deliver it. Not necessarily the fastest, but who can deliver it, if there's some kind of a global conflict, and your opponent will not give it to you.

Evan: Well, we saw Howard Lutnick and Davos at the World Economic Forum who came out and explicitly said globalization is dead.

Brent: That's right. That's right. And so I think price is no longer the number one determinant. Efficiency is no longer the number one determinant. Robustness, and national security is the number one determinant. So I think I feel like we've gone, we've been in a period of time where profits were the most important thing. And now I think power is the most important thing. And I think that's not only a multiyear, but probably a multi decade event of the pendulum swinging back that way. Now, there will be two periods of times, it's not going to go like that, you know, swing back and forth. But overall, I think that's where it's headed. And when people tell me, you know, these tariffs are not going to work, capital controls are not going to work, it's going to cause things to slow down, it's going to cause things to be more expensive, my answer is always, you're right. But it's also going to happen. And when they tell me it can't work, I say it absolutely can work, it's just not going to work the way you're used to. And the reason I know that is, that's how most of history was, I think, because, you know, we have a very strong recency bias that because this is the way things work for the last 50 years, that's normal. But really, the way the world has worked for the last 50 years is really abnormal. You look throughout history, it worked much differently. And so the idea that it can't go back and act like it did, you know, in previous centuries, you know, history tells me it can.

Tarek: We talk a lot internally about jurisdiction. And this has been a recurring theme throughout the company is pay attention to jurisdictions now. And while gold and silver are truly global markets, what you're seeing is that the price in different locations is starting to become wildly different. So where we typically, you know, for gosh, being in this business almost 20 years, it didn't matter whether gold was trading in Shanghai or India or London, or the US. Generally speaking, it was pretty much the same price everywhere. And now we're getting dislocations in markets. And that's the reason why, like when when Trump first issued his tariffs, we saw huge quantities of metal moving from London to the United States, because there was an arbitrage opportunity made there. And then vice versa, the metal moves back, and you're seeing these massive swings. And now, with the run up in silver, we saw prices in Shanghai at sometimes trading at a $15 premium to the prices in the United States. So I think jurisdiction and the deglobalization trade matters more than people think. And I think, to your point, it's the normalcy bias is a heavy, there's a heavy amount of friction. And it's making it difficult for people to reorient their minds about what the future is going to be.

Brent: Yeah, I think people just don't want to accept that the world has changed, quite honestly. And the the direction that the world is heading is going to be a harder world. And I don't just mean that from an asset perspective, right? It's, it's going to be more difficult, it's going to be more challenging, it's going to be, there's going to be more uncertainty. And people, when they think about the future, they want to think about it being better. And in some ways, this may be better, right? Because it removes some potential left tails, you know, really extreme events where we were dependent upon a foreign nation, who won't give it to us. But it also makes the, you know, the, the third, the first part of the bell curve a little bit more difficult than what we're used to. But I just think people have to get used to it, because I think that's where it's headed. You don't have to like it, but I think you need to face reality.

Tarek: The wealth polarity, the cultural divide is going to continue in in that trend. And the the more deglobalization there is, and the more difficult things are the separation between the have and have nots widens. And I think that I think that should be concerning for all of us. But to your point, like we have to face reality, and we have to adjust our daily habits. And, you know, how we allocate capital in an environment that's changing dramatically.

Evan: A lot of people who, who see that and view that like a Ray Dalio figure, see and talk a lot about the risk that like the yuan could replace the dollar as the global reserve currency. Do you still think that that's completely out of the realm of possibility?

Brent: Well, it's not completely, I always say anything's possible. But it's a very low probability. Yeah, it's, it's almost to the extent that I call it nonsense. I won't quite go that far. But I get pretty close. Because if that's why, why, why haven't people already done it? In other words, if the yuan is so fantastic, no, nothing is stopping people from leaving the dollar or leaving gold or leaving reals and go and buy a bunch of yuan. So why aren't they doing it? And, you know, the market has very clearly chosen that they like the dollar better than you want.

Evan: And it's fair to say that if the dollar and all you know, you say it's gonna be harder. If it's gonna be harder in America, it's gonna be even harder in China.

Brent: Yes, exactly. And so, you know, three times in my life, I was probably more, but I can distinctly remember three times in my life being given the very tough love speech, once by my dad, once by a coach, and once by a Wall Street trader who basically told me I needed to suck it up and get used to it. Right. And I hated it. I hated the moments whenever they were yelling at me. Awful. But as soon as it was over, I realized they were right. And, you know, I needed it. And I kind of think the world needs some tough love right now. You need to get over it, you need to understand this is the way it's going to be. And the sooner you do, the sooner you're going to be prepared for what comes next. And that will make it a little bit easier.

Tarek: For those interested in some of that tough love, where can they find your research and learn more about you?

Brent: Got it. Well, so I'm available at SantiagoCapital.com is our home website. If you go to Research.SantiagoCapital.com, we've got two different levels of research that we provide. And you know, I'm pretty active on Twitter. And we have a podcast we do every week called Milkshakes, Markets and Madness comes out every Sunday on YouTube.

Tarek: Yeah, really popular YouTube channel. And, and yeah, you're prolific on X for sure. So people need to follow you if they don't already.

Brent: It's pretty fun.

Tarek: Can't let you leave without giving you some silver.

Brent: Oh, fantastic.

Tarek: Yes. The Y'all Street silver coin. We appreciate you.

Brent: Oh, I love it.

Tarek: Joining us.

Brent: Thank you so much.

Tarek: And look forward to following your work and we'll see what the future holds. Thank you. Thank you so much, Brent

outro: That's the Y'all Street.