The Milkshake Theory: The Dollar's Strength is Both a Blessing and a Curse & Impact on Real Estate

Today, Brent Johnson, we got to test the milkshake theory. The milkshake theory man himself is. Here, so if you haven't heard about it, you should. But we had the guy himself, the one who coined the term milkshake theory, and I think you're going to like what he had to say about the strength of the dollar, inflation, where the economy's heading, printing, bitcoin. All of it. Well, he has a really interesting opinion because while a lot of people think that the dollar is going to weaken, he really believes the dollar is going to strengthen. And he has a lot of data and some good points behind it. I will say this one is very high level, but it's also so good to know and understand this because the US economy is more than the dollars we transact in the United States. Well, I like the way he explained it because he basically said four or five years ago, in spite of all the printing, that the problem that the US is going to have is a strong dollar, which everybody attacked. Yeah, but now the dollars very very strong. Right now it's almost at one ten, so it's jumped a lot. So it's very interesting. Yeah, So if you're having trouble with this one, just keep pushing through because I promise you it's worth it. Yeah, we had trouble too, but just listen over and over and O. So the dollar is exploding higher. Is the milkshake theory playing out? I think it is. You do well before we jump into that. What is the milkshake theory for those listening that don't know. Based on the design of the monetary system, for better or worse, the US dollar is the global reserve currency, and that's what the entire global monetary system is levered off of. So when things go bad, that becomes the currency or the safety haven that everybody flows to, whether they like. It or not. And so that's kind of what's happened. I mean, the dollar has gotten stronger for a couple reasons. One because there has been a global slowdown overseas in other places, but also people want to invest in the United States because it's the one area that's really great owing well, we've got the technology, we've got the rule of law with political stability, now that you might argue that's a little shaky these days, but for a number of reasons, the United States is seen as the safe haven for everybody else around the world. In addition to that, a lot of times people think of you know, the Cayman Islands or Guernsey or Singapore as taxans. Well, for the rest of the world, the United States is the tax haven. So every wealthy family, every wealthy business owner anywhere in the world tries to get assets into the United States because for them it's a tax haven. So for all of that, you know, but if you're going to invest in the United States, you need dollars. You can't send ye in to the United States and go buy an apartment building. You know, you need dollars to do it. So that capital flowing in the United States makes the dollars stronger. As the dollar gets stronger, it puts pressure on the rest of the world because now it's like an interest rate raise for the other countries that owen dollars because the dollars getting stronger versus their currency. Kind of So let me ask a questions about that. So, you know, you say that the dollar, like say, China owes US a billion dollars just to keep it easy, How does the dollar strengthening make them owe us more? So one correction, they don't owe it to the United States. They owe it to each other. Okay. So in other words, China maybe issued a bond denominated in dollars, but the purchaser of that bond could be from Australia, it could be from Japan, could be from Germany. They don't necessarily owe it to the United States. They just owe it in dollars. Got it. So as an example, if if but now to your point, they would they owe a billion dollars. If their economy slows or if they're not able to get as many dollars and their currency falls versus the US dollar, it's harder for them to get the dollars to service the debt. I see, because they're having to exchange their currency for US dollars to then pay it to service the debt. That's right. And if and if you know, if the U wants at seven and a half when they borrow and then it goes to eight and a half, they've lost ten percent, you know, And so it's almost like the amount that they borrowed went up ten percent. So I had a couple of questions. So the d x Y is almost at one hundred and ten. Yeah, it's like a almost it's a thirteen year high. It went to like one thirteen one to fourteen for a couple of days two years ago, but in general it's kind of back at its thirty year high yet. So I went back and looked, and it looked like in eighty four was in the one fifty, and in two thousand and one it got up to about one nineteen. But this is a thirteen year high essentially, right, So how does that affect Because I watched a video from uh with that you did that said essentially when the dollar gets strong, other economies get weaker, the ones with their currency. Is that right, that's right, that's right. And this has always been my fear. A lot of people think that I want the dollar to go higher, and my point has always been I don't necessarily want it to go higher. I just think it's going to go higher, and it causes a lot of problems. And in many ways, the question becomes, does the dollar go high higher? Is that what causes the problem, or does it go higher in response to the problems? And I don't really know which one causes the other. I just know that the correlation is almost one hundred. Because there's a lot of chatter out there that says print print print, print print is going to make the dollar weaker, right, And that's what a lot of investment people kind of hang their hat on. Right. That is not playing out. Not exactly. It is to some extent in another sense. And I'll tell you what I mean, because there is some nuance involved. I've always said that the dollar may lose purchasing power against real things gold, real estate, diamonds, and that's happened whatever it is, you. Know, the wheat, you know, So it could lose. Its purchasing power versus commodities. And I think over time history has shown that fiat currency does lose value. But the people that are always talking about the dollar is going to get inflated away and it's going to lose global reserve currency status and as a result of the United States is going to lose its position in the world and the rest of the world's going to rise. That's not accurate because all the other countries have fiat currencies as well, the differences and they're all having to print their currencies. Yeah, I've heard you call it fiat versus fiat. Fiat versus fiat and so, and this is really important. And some people will say, Okay, if all fiat loses value versus real things, then fiat versus fiat doesn't really matter. That's completely wrong, And I'll tell you why, because every financial crisis of the last thirty years, forty years, fifty years has probably had some component of fiat versus fiat rising versus the other, whether it's a So I'll just give. You an example. In you know, the nineteen nine, early nineteen nineties, Mexico borrowed a lot in dollars and then their economy slowed. People stopped investing in Mexico and they couldn't service the dollar debt, and they called it the Tequila crisis. I don't know if you remember that. Remember in the late same thing in the late nineties, you know, there was an Asian currency crisis that was largely due because the tiebot had been pegged to the US dollar. But then when that peg broke and the Tibot fell a lot versus the dollar, it caused a crisis that then rippled throughout all of Asia. So fiat versus fiat does matter. But the reason the US has been able to get away with printing and printing and printing and the dollar hasn't or the DXY hasn't fallen versus other currencies. It is because there's so much demand for the dollar outside of the United States. In other words, there's more demand for the dollar outside the United States than there is inside the United States. But that doesn't exist for any other currency. And that's the reason for that, though, is because their currency is unstable, so they're trying to be in the dollar because it's more stable. Typically, that's absolutely right. And then also it kind of goes back to the nineteen seventies when you know, the United States and Saudi Arabia get this. It wasn't an official treaty or anything, but you know, they the US said, you know, we'll keep you in power, we'll protect you, will help you develop Saudi Arabia, this will be good for you, it'll be good for your people. In exchange, you agree only to sell oil in dollars, right, And so every economy needs energy to run on, and so every economy in the world needs oil, and so therefore every economy in the world needs dollars in order to buy and so there's more demand for and so because that became, you know, the kind of the standard. Then more transactions were done outside the United States but denominated in dollars because it was the easiest currency to transact in well. So so that created a huge amount of demand outside the United States. So the example all use, and let me make this point because I think it's a it's important to understand. If you think of each country like a swimming pool and it's filled with water, and then they print more money, that's like putting more water into the swimming pool. Eventually it's going to flow over and run out on the grass and into the streets. That's inflation, right, that's when the purchasing power is falling. The problem when people say they're going to print money and that's going to happen, it's not that they're incorrect, it's just what they forget, or what they don't know, is that there's a drain on the bottom of the swimming pool of the United States that drains out into the rest of the world and goes to all the other swimming pools. All those other swimming pools, they don't have a drain that stays in their country, yea, And so the US dollar goes out and then they print their own currencies and they overflow. Those other countries get higher rates of inflation than the United States does because they don't have a drain. I noticed that Russia had the highest inflation in the world in twenty twenty four. That's right, Yeah, that's right. So I thought that was really really interesting. It is. And a lot of times people will say, you know, if another country has natural resources or has a strong government or strong military, they're not susceptible to these same problems that you know a smaller country would be. But you know, Russia is the biggest country in the world, They've got one of the greatest militaries in the world, they've got more natural resources maybe than any of the country that they still have these issues. So are you saying that the inflation primarily in these other countries is caused from too many dollars. It can be, and in some cases it is, yes. And so if you've ever heard a lot of times when people talk about the system, the design of the system, that it's an exorbitant privilege for the United States, it's because we can export our inflation, because we can send the excess dollars outside the United States, and it causes inflation to flare up overseas in these other countries rather than domestically, and it causes. That because like say, you know, in China, people are getting dollars, they have more purchasing power in China, and that's why it causes that inflation. Well it's not only that, but they have to they end up printing their own currencies, okay, because they've they've all borrowed excessively too. I see. So we're actually exporting it to the government like to other governments, and they're having to then print their own on fiat currency. Well, a lot of times when capital flows overseas, a lot of times it'll go to the central bank, and then the central bank will exchange the dollars that have arrived in the central bank for local currency. I see. So that local currency in that market increases, that's and then the houses value and they get inflation. So in a weird way, as we print, other central banks have to print just to keep up with the strength of the US dollar. And it becomes a vicious cycle. So this is what happened in twenty twenty two. So do you remember in the first six to nine months of twenty twenty two when the Fed started raising interest rates. You know, markets were under pressure. The stock market went down. But it wasn't just in the United States. The same thing was happening all over the world. And because the dollar is going up versus the other currencies and all of those other countries need to buy oil, the input costs into their economy were huge, very inflationary, and it was causing huge problems. So as an example, in twenty twenty two alone, as a result of the dollar getting stronger, Japan had to bail out both their government bond market and their currency. The Bank of England had to bail out the guilt market, which is their treasury market. The ECB had to set up a special facility to buy Italian bonds because they were starting to spike and they didn't want that to happen. And this is all and that's when China's economic decline really kind of started to accelerate with their real estate market. And this is all related to the dollar going higher. Now, again, did this cause the dollar to go higher, or did the dollar go or when hire cause that? Again, I'm not smart enough to know that. I just know that the correlation is one hundred percent. So this sounds like, it's really good for the dollar to the person listening. But you make the argument that this is actually inevitably bad for the dollar. So can you explain that. Well, in the short term, it's good, right, And look at what's happened in the United States in the last couple of years. The stock market has gone through the roof, you know, asset prices have gone higher, and that's coincided with the dollar being higher as well, because the rest of the world wants to send their money into the United States. And that's good that on some levels, that's a good thing. It's good for us right now, and it's good for people who have assets. It's not necessarily good for the lower economic status, right, because the wealth inequality is expanding. But all things being equal, you would rather have capital flowing into your country than leaving. It's like a company, do you want to only be sending money away? You want money to come in as well, right, So it's good on a relative basis, But if it gets too strong, if the dollar gets too strong, it will cause an international crisis, and then that some of that blowback will happen on the United States as well. So I remember, obviously I've been in the real estate game a long time, and whenever our dollar gets really strong, we get a lot of foreign investment. Yeah, over the years, I've seen tremendous amount of foreign investment. It does appear because obviously they're in their own currencies, and they're like, I want to put my money where the currency, where the asset prices and the currency is strong. So is that where you kind of. See you think real estate's going to get pushed up even higher potentially. This is one of the questions I have for you. Asked. I actually do. But the point you're making is something that I've tried to explain to people as well, is if you're a wealthy investor outside the United States and you have some access capital to spend the United States, in many ways, is a no brainer to do it. So, as an example, if they buy a building or a house, or a stadium or whatever, they invest in the United States, and over the next five or ten years that asset prices rise, but also over that five or ten years, the dollar rises ten or fifteen percent versus their local currency, they're getting a turbocharge on their local dollars, right. And so also not even just real estate you. Let's say you live in Brazil and you've got an extra million dollars and you send it to your brokerage account in the United States and you buy tea bills with it, and the T bill pays you five percent, but the real loses five percent that year, he just made ten percent in cash. Correct. So before we jump right over that point, I think that's a huge point. What you're saying is if you're sitting in Brazil with a million bucks and you just all you do is move it to the US too, and it's a it's a in a T bill making four percent, and at the same time your your your currency in Brazil loses four or five percent, you've actually made eight, eight to ten percent. Yeah, that's right. And when I was just in Median last week with George uh friend, George Gammon, and he he had some people from around the world there, and there was a there was a guy from Australia and he was in the real estate business in Melbourne, and he told me that's exactly what he's doing. He buys tea bills, sits there and the Australian dollar lost five or six percent, so he made he says I'm making ten percent percent in cash. So this is not just me just making this set up like this is real world people doing this. So this this is precisely what you mean by the strength of the US dollar, because what will happen is foreign capital will come into the US and it potentially could drive asset prices higher. Yes, and I think ultimately that's the milksh What I always said when I first laid it out was that the milkshake, it has a number of different components to it. Number one. When I first started talking about this, interest rates were near zero, and in some parts of the world they were negative. And I said, in the years ahead, interest rates will rise, and as interest rates rise, especially the United States, that will pull capital into the United States because people already want to invest in the United States anyway. Now if they can get paid four percent for sitting in a T bill, it'll turbo charge that. But what I also said is a lot of times when interest rates go up, that crushes the economy because of the borrowing costs or higher. It slows things down economically and you'll get a recession. But the point I made was that I thought, because all the capital would becoming in the United States, it would go into asset prices. So I thought real estate would do okay. I'm not a real estate expert, but I thought real estate would do okay. I thought US stocks would go much higher, Bond prices would fall because those interest rates go up. Bond prices fall, The dollar would go up because people are trying to get in, you know, to the dollar, into the US markets, and that gold would go up as well because even though the dollars going up versus other currencies, they probably are going to have to print it and so it maybe loses purchasing power. And ultimately I think this will be a huge crescendo, much higher, and then after that comes the huge Yeah. But I just don't think we're there yet. Well, we'll chat about because I think people are going to be confused because I have a couple of things. So one, this is obviously good for the dollar, good for people that have assets. But what happens when you know, you talk about the dollars, you know, get saturated because there is no drain in these other countries. Well, then I think those other countries will have crisis before the United States. And ultimately what I think will happen is they will have to do some kind of a reset. So back you mentioned the dollar being at you know, one fifty or something back in the nineteen eighties, that's essentially what happened as the dollar got so strong. Reagan felt it was hurting the US economy. At that point, it wasn't causing so much damage around the world because there wasn't so much debt as there is now. But ultimately, I think what will happen is, you know, we'll get this big crescendo of asset prices going holler, the higher the dollar going higher. But then ultimately something will happen. And I'm not smarter than no no, no, whether they will reset it themselves, or whether there'll be some kind of a crash that, you know, brings asset prices down and then they'll have to reset it. Because when I say it, I mean kind of the global monetary system, which sounds crazy, it's such a huge thing to consider, but that's what they did. In nineteen eighty five. They had this plaza acord where the dollar was at it's high, and they reset it. They over the next couple of years, it went from I think one fifty to one hundred or something so devalued by like thirty percent over the next two or three years. Well, I think it's important to also mention that the system of credit is global, yes, and I think a lot of times people are in their own hometowns, they're in their states, you know, or they're maybe they're reading the local news. But there's a tremendous amount of flow of capital around the world now, way more than there was in the in the eighties, right, right, So we should talk about that because one of the things that you mentioned was that as our dollar gets stronger, it kind of starts at the periphery. I think you said, so you start to see the weakness in these economies, which we're seeing right now, absolutely in these countries, and it starts at the edges and works to the middle. It's not going to start at the core, right, I think is exactly what you said. Yeah, it always starts at the core or at the periphery and works it's to the core. The idea that the core is going to blow up and at the periphery is going to be fine to me. It's just it's not logical, right, it just doesn't make sense. And plus if you think about who creates the dollars. The United States creates the dollars. The US is not going to run out of dollars because they can print them right now. The purchasing power might fall, but they're not going to run out of dollars. But on the periphery they can run out of dollars. Which explain that explain perferry core? Like what so think of the United States as the center of the universe. I know that, you know, the people that either hate America or think that were these American exceptions to think were better everybody that they hate thinking that. But just for this example, let's pretend the United States is the core, and then you know, all the other economies are around it. All these other economies they transact between them to take the US out of it. All these other countries they transact amongst themselves in dollars. It is the world the way, the official world currency. Right in their own countries they use their domestic currency, but amongst themselves they use dollars. Now, the way they get dollars, there's two ways they get dollars. They either trade the dollars they already have amongst themselves, or they loan new dollars into existence. So Turkey extends a dollar loan to someone in Egypt, or Japan extends a dollar based credit to a supplier in the Philippines in a way, that's creating dollars out of thin air. That's fine as long as the economy keeps spending. But when people stop spending and the economy comes to a standstill, all that debt needs to be serviced. There are no dollars to service the debt. That's when you start getting to faults. And when you start getting defaults, you get a credit contraction, which is the opposite. Of loaning new money into existence. The other way that they can get dollars is if you come bring the US back into it. The US buys goods from all over the world, so we x you know, we they import the United States. We export our dollars, so we send dollars overseas. That's where they get it from. Well, guess who's president now. Yeah, tariffs right back. Yeah, So so tariffs unquestionably will it may not eliminate, it won't eliminate, but it will reduce the flow of dollars to the to the periphery. Let's explain what the tariff is real quick, because basically we're making it because one of the things Trump wants is manufacturing, right and higher a stronger dollar does not help manufacturing because what it does is incentivizes people to buy stuff from outside of the country. That's right, right. So I think there's two parts of this. I think he doesn't mind having a strong dollar, but I don't think he wants a super strong dollar, at least not once we have the manufacturing rebuilt. But here's the interesting thing. We don't have a lot of manufacturing right now. We have some, but he wants to have a lot more. But if it for our. Manufacturing to compete globally, you kind of have to put some of the them out of business. Right with tariffs. So one of the ways you can do it is with tariffs, and other ways you can do it with a strong dollar. So my point is is, once you start exporting, you want a weeker dollar, But in the meant that while you're rebuilding, you don't necessarily want a week dollars, you know, because you want to keep your opponents under pressure. Right. Think of it like a wrestler, right. You're wrestling and you ultimately you want to do this one move, but you don't just want to let him off the mat. You want to hold him down there. Yeah. Right, you have to have pressure and leverage, so you're. Trying to get in position, right. Explain that a little bit. Okay, So because now I'm almos a little over my head, so I'm swimming, it's over that some of the audiences that. So if you have a strong dollar, how does that help while you're rebuilding. I understand why a weaker dollar helps once you want to export, But why is a strong dollar when you're rebuilding. Well, some of the components that you will be using to rebuild, you're purchasing those components with dollars, I see, So having a strong currency helps purchase that stuff that's going to go into the manufacturing. If you say you're going to build a plant, you don't just say it, Go get a loan and the next day of the plant's there. It might take a year, two years, three years to do this. Right, And so even if your plan is to start making cars or making steel or whatever it is in the United. States, nuclear power, whatever it is. And we're not going to be exporting it tomorrow. It's going to take a couple of years to get there. So my point is is, I don't know that they necessarily want a week dollar today. I don't think that they want the dollar to skyrocket, But they don't necessarily want it to follow twenty percent either, because then it's going to cost a lot more to build those plants, to build those manufacturing facilities, to build the factories, to hire the workers. So having a strong dollar is not necessarily bad while you're rebuilding your manufacturing base. From an optic standpoint, too, it sounds good, right, like we've got a strong dollar, but there are consequences because that means that whoever we're buying from, it's worse for them. That's right, right. So, and that's the other thing that I'm glad you said, it's worse for them because it's a relative game. Yeah, we don't live in an absolute world. We live in a relative world. So another analogy I'll often use is if you're a basketball coach and you walk into the gym to look at your team, and you know all of them are shorter than six foot tall, and two of them can't tie their shoes, and you know three of them can't even walk well one of them is still going to be the best basketball player, even though they're all horrible, one of them is still going to be in the bunch. And that's kind of what the global economy is like. And for all of the negatives you want to a tribute to the United States, either politically or you know, economically or fiscally whatever. I accept that as true. But it's just as bad, if not worse, everywhere else. And so it's the US is still on a relative basis the strongest economy in the world. So let's go back, because I feel like we jumped to Trump and the tariffs and everything else. So you were saying, there's two ways. You explain the two ways that other countries get dollars, So we were kind of trying to figure out, like why this is eventually bad for them. Okay, So the first two ways was one they could trade amongst themselves, or they can loan new money existent into existence among themselves. The third way was the United States can send it to them. Trump being in power changes the ease and the rate with which we export dollars to the rest of the world because he's going to put tariffs on them, right, and he's going to say, not only are going to put tariffs, but come make that stuff in the United States. If you don't try to import the United States, but if you come build it in Arizona or in Utah or in Tennessee, then you don't have to pay the tariff, right and so, and as a resulting, you're not going to be sending dollars overseas. The reason that's bad, or has the potential to be bad, is all of that debt outside the United States that already exists. So I think most people know that we owe like thirty six trillion. I don't you know, I don't even know what the officials it's over thirty five. I know that, and listen, that's that's not a great thing, right, But what many people don't realize is there's even more than that outside the United States that other countries owe to each other. That's got the euro dollar market, that's. Called the euro dollar market, and that that's a result of what I was talking about, you know, at post nineteen seventy two, when they started trading oil and dollars. Let's just say that again. So there's more US dollars outside of the US than there are inside of the US. And there's more US dollar debt outside the United State. I think that's an important piece because everybody looks at the US and. It's the key. It's really the key to it all once you understand, and I'll tell you, I used to be on the other side of this argument, and it's because I understand all the arguments that people make against the dollar, against the UN State's because I used to make them myself until I discovered the size of the euro dollar market. That was the thing that I was always missing. When I discovered that, and then I was like, well, they owe all this dollars to the United States. And then when I realized they don't owe it to the United States, they owe it to each other, that was the light bulb moment because it shows how much demand there is outside the United States, and it shows that if they defaulted on those loans, they're not defaulting on the United States. They're defaulting on each other. So a lot of times people say, well, they'll just using a dollar, they'll default on those dollars and they'll use something else. Well, one person's debt is another person's asset, So you know, let's just say there's forty trillion dollars of US dollar. Debt outside the United States. If they decide they're going to default on that, well then forty trillion dollars outside of the United States goes poof disappears. So if those dollars disappear, now they're an economic disarray, right, because if all the assets on your balance sheet, I'll suddenly become worthless. What do you do? Couldn't they convert that to their own currency, Like, say that they owed forty four trillion in US couldn't they convert that to francs or you know whatever their so. Potentially, but I would say, let's say that somebody comes and wants to buy one of your buildings and they like the price, but they want to pay you in Mexican pay. So what will you guys say? Yeah? Hell no, right, because if their currency is inflating, why would I want to take your courage exactly. So it's not that it can't happen, it's just that it's not economic. You know. Yeah, great, Well we had somebody that wanted to buy one in bitcoin. Yeah, and you know. I actually probably would have been a good deal. Well yeahight, that would have been. But I'm like, what do I. Do with that? But you know, that's the thing. It's not that it's a horrible I know, just what do you do with it? Correct? It brings additional problems into the thing. It doesn't mean that it's necessarily correct. It just brings additional complications into it. So they would need something like if they were going to move away from the dollar or to convert this. Essentially, everyone would need something that everyone agreed upon. And you have options like cryptocurrency, like bricks, you know, different things right that are kind of trying to but they're trying to be they're trying to replace it. And the thing is is that if everyone can agree on which one that is, then possibly they could. Go to that rock. This is I'm actually glad you brought this up because that's a verious, dude observation, and you're absolutely right. The trick is getting everybody to agree. So if everybody agreed this is what we're going to and they did it on the exact same date, at the exact same time, and they already agreed, who's gonna distribute it, who's going to enforce it, who's gonna you know, how it's going to operate? Then it could potentially work. The problem is, I don't know if you've ever been in a meeting with more than three or four people, right, getting everybody to agree nice? You know what if everyone what if everyone decides, hey, we're going to use bricks, but then bricks the value plummets, or you know, to your point, like like if you go first and then the value plummets and then somebody else is going six months later? Did the countries? Part of the reason countries want to get away from the dollar is they want to be in control. Mm hmmm. So now the idea that they're going to go to some other thing, but they're still not going to be in control, Why go through all the pain and suffering if you're still not going to be in control. Right because you know, say it's bricks, well, then all of a sudden they're printing or whatever. And crypto would be a problem too, because there's as of now, there's only a certain amount of them, right, Like there's only a certain amount of bitcoin, and the whole, the whole thing that makes bitcoin work is there's only a certain amount. If they say, okay, well we're just going to extend it so everybody can get their loans in bitcoin. That would defeat the purpose of bitcoin, right could It could? But then the other thing is they could. This becomes down to the whole hard money versus fiat money thing. In many ways, I'm kind of a hard money advocate. I wouldn't say I'm an advocate, but I'm very sympathetic to the whole hard money. And bitcoin is hard money technically, right, it is hard money. But the problem is is that that can It doesn't have to, but it can inhibit growth. And the example I'll give is, and it's not always just a lot of times fiat currency will say, well, fiat currency is for the wealthy who have assets. The lay person doesn't benefit from fiat currency. Well, there's actually a very good example that that disproves that, and that is back in the I don't remember it was late eighteen hundreds or early nineteen hundred's kind of the I think it was early nineteen hundreds when a lot of farms were going bankrupt because there was not capital being extended and farmers would have to turn in their farm to the bank. The bank was foreclosing, and the reason they were foreclosing because they couldn't get any loans, and the reason they weren't getting any loans is because we were on a gold standard and capital gold wasn't you know, expanding, and so they weren't expanding the. Money. And there was a famous cross of gold speech by a Congressman William Jennings Bryan where he says, you will not you know, crucify mankind of on a cross of gold, and he was. His argument was that you need to get us off this gold standard and you need to extend some credit. These farms are not bad farms, they're just in a liquidity crisis right now. If you could extend them credit for a year, two years, three years, they could get back on. So the point is is, will there's a lot of problems with fiat currency and there's a lot of you know ills that kind of flow downstream from that. It's not one hundred percent given. The restriction to credit, that going to a restriction. Credit is necessarily going to solve all these products. Right, because countries need the money and they need to extend the credit and they need to print, right, that's really. Under certain and there's always nuance, right, and it's it's it's never people like to break this down into a black or white issue, and unfortunately it's just not so. I know, you wrote a paper like may Or June, I think it was. It talked about the interconnectedness of the global real estate markets, right, and this is a real estate channel. So and one of the things that you said in there is that China was kind of the global real estate driver for the world, right And so again, I think people look at the markets that they're in, you know, just kind of local, but they don't realize that there's a lot. Of forces and influence much bigger than that, right. Yeah, So China, I would argue that China really drove real estate markets globally for kind of a twenty year period. And the reason is as money flowed into China over the last kind of twenty thirty years, you know, we became a globalized economy and their rapid growth, incredible amount of wealth was created in China. And he kind of gets back to the milkshake thing again, is the people who made the money in China, they didn't just want to leave it in China. They moved to Australia and Canada. They moved to Australia and Canada, the United States Angeles, New York is the point. And that and and so not only did the great amount of wealth that was created in China raised Chinese economic status, it raised Western economic status because you know, house prices went up, real estate prices went up. You know, we've had these real estate booms. The problem is that now if and when now China is really and it's you know, it's like everything it's great until it isn't. And as long as that capital kept flowing into Australia, in Canada and the United States, it was great. The problem is is if if China doesn't continue to export the money that they make into those real estate markets, those real estate markets starts to slow, I mean Canada, United States, Australia. And then if China really gets in trouble and the people have to repatriate their capital back to China to pay off their debts there or whatever it is, because their economy is now going down. Now you've got capital leaving Canada, in the United States, Australia, and then you can get into a two thousand and eight type scenario. I actually don't I'm actually curious to get your thought. I actually don't think that the United States is going to have a real estate type scenario of two thousand and eight, but I think Canada and Australia could. It's possible. So why do you think that? Because if you look at all of the economic numbers of the United States real estate market in two thousand and eight, two thousand and six, two thousand and seven, two thousand and eight time frame, and you look and see what those numbers are now in China or I'm sorry, in Canada and Australia they make the US numbers, which we all know. We're crazy, look tame. Okay, Yeah, well, I it's interesting because it's a we'll just pick on because that's the one that we've been doing the most research on. The average Canadian home is somewhere between seven and eight hundred thousand dollars, and most of the big cities are well over a million. And that's what's interesting is they've restricted supply, they have that reset on their interest rate, and then they've also opened the immigration floodgates so. That the population growth has pushed. And so we've been doing this kind of everybody here is bitching when house prices got over four hundred let's say, right, and I'm like, well, just look at your neighbor north right, Yeah, like you know, because relatively their wages are not that much different. Well, I might have this wrong, but I think the the house price to income, I think it's like nine or ten, yeah, right, or maybe even higher. It might be. And that's the thing is, it's not it's not that the. It's not that it's necessarily a bad thing for house prices to go up. You want economic growth, But the problem is it's gotten so high relative to income. A lot of the people that. Are now entering the workforce, let's say you make seventy or eighty grand, which many people that would be fantastic correct wage for But if a house costs a million dollars. Well, if you're in the game, it's fine, exactly, yeah, But if I'm not, it's not good. Even for the average house right now in the US, you have to make one hundred and fourteen grand to qualify for it, so plus the down payment. So I mean that's a lot for most people. I mean you, most people need a double income in order to do that. Yeah, I was going to ask you. You both you and Jeff Snyder both think that you're going to see interest rate cuts this year, right, and we were supposed to have a lot more last year we did it, And now we've got Trump who's traditionally been you know, all over the Fed with that. So what what's your crystal ball say with the cost of debt? Well, so let me clarify my view on interest rates, because this is I'm actually a little bit ambivalent on interest rates. I think they either kind of stay at this level, potentially even drift a little higher, or they crash. I don't think what we're going to have is just a slow and steady lowering of interest rates. When I'm when I when I say that, I mean the long bond, like the ten year or longer. Now, the Fed will may cut, but I don't think they're going to cut. It's funny because they cut a lot right up front. They cut a lot. In September, then again in what was it, the December meeting. But since then, the data that's come out, inflation hasn't been falling as much as they thought it would, and the economy is staying fairly strong. So I don't know that they're going to cut kind of on a regular basis unless something gets really bad. The economy turns down really hard, and they cut a. Lot because it's not really that bad right now, right, no, exactly things are that. I mean the ten years up over for six or four five, so it's a lot higher than it was back in September. Right, And so again, I and even if they cut on the front end, because they ownly control the front end, right they cut them, there's no guarantee the long end's gonna wae. And that's what we've been seeing, right, Like, we've seen them making cuts, but we have seen mortgage rates going up, right, you know, which has been confusing to a lot of people. There's a couple theories. Some people said the mortgage prices already fell based on them knowing that the Fed was going to cut. Other people tie it to more of the bond yield, you know. So it just depends right, right, right. And I think there's a little. A lot of times people think cutting interest rates is stimulative for the economy. I would make the argument that higher interest rates have been just a stimulative and may remain stimulative until we hit the wall. So what I mean by that is most of the people that own treasuries are the wealthy, so as interest rates go up, they're getting more and more money put out of their bank account every day. They're hedging inflation already. Right, yeah, and then they can put that back into the economy. So, you know, but when the reset cycle of the debt that was taken out four or five six years ago hits and now everybody that's currently sitting on three four five percent rate, now we're paying eight, nine, ten percent rate, that's when you hit the wall. And I think a lot of commercial real estate and other you know, kind of corporate real estate, there's a huge refinancing cliff over the next twenty four months, I think there is. And so as that hits, that's when that's when the economy could hit the wall, and that's when rates could come down very fast. Yeah. There's debt maturities right well, mostly on the commercial side that are it's massive, right right, and I think last week looked it was somewhere close to a trillion dollars. Right, it's a few billion, yeah, but it's I think it's going to peak like late this year, I think is when it's going to peak. Yeah, And there's a bit of a hangover there. It's interesting though, you know, because I was thinking about the milkshake theory, which, by the way, your your concepts all over the internet now, right. It's kind of funny there's all kinds of people talking about the milkshake theory, but it's neat They always give you a credit for it. But part of the milkshake theory is I understood now that I've got you here, is we're all now we're going to see you or FOURIGN dollars come to the US. Is that part of the milkshake theory? Yeah, I mean, I think I think is. We've had this amazing boom since COVID, right, and there was a little bit of a hiccup in early twenty twenty two, but for the most part, we've just had this incredible run. But we're starting to see signs of things slowing down, especially overseas. I would expect that they will have to do qy so they are already cutting rates even many places around the world are already cutting rates or moving to easy monetary policy even faster than the United States, which is part of the reason the dollar has gotten smaller because it's a relative game. My guess is that liquidity that still exists will find its way to the United States. But if liquidity starts to disappear, it doesn't mean that we can't have a downturn. It doesn't mean that we couldn't have a shock to the downside before the printers come back on. But when the printers come back on globally, which we're not going to have QI in the United States and the rest of the world's going to be raising rates, that's not going to happen. If we're doing QWE in the US, then the other countries are going to be doing QWI as well. And my guess is that those people that are the recipients of the QE overseas, they're going to put it right back in the United States as they have over the last four or five years. Yeah. Now, we keep talking about how good the economy is and how you robust it is, and how well it's doing, but really this is just for those that own assets that are benefiting from that strong dollar, right, so it really does hurt people in the US that don't own assets to have a strong dollar. Is that correct or. The strong dollar? One of the biggest criticisms I get with the whole milkshake theory is it Brent, the dollar is really not strong. Yeah, it's strong versus for currencies, but it's not strong. That's true. And I've always said from the beginning the strong dollar is relative to other currencies. Right. But while the strong dollar might only be strong versus other currencies, imagine if it wasn't strong versus other currencies. Right, So people think, well, we still have all this inflation. Okay, go live in Russia, go live in China, go live in these other brazil inflation is even higher there than it is here. So I'm not trying to make light of the rise and the cost of living in inflation United States. I think it's a problem, but on a relative basis, even though the strong dollar hasn't necessarily eliminated all pain, it's eliminated a lot more pain than it has in other places. Does that make sense, Yeah, it does. I just what I'm trying to get at, though, is just you know, people listening or you know, people that aren't in assets. You know, they're looking for a little bit of reprieve. Do you see any reprieve coming as far as like home praiss, gold prices, stock prices. So I actually do, I actually think that. And I always reserve the right to change my mind, and the things I don't mind saying something haven't be wrong because I'm not a wizard. I can't care you're not a saying. A lot of times people will say something that they don't want to be wrong, like the idea that I think I can. Predict the future and never be wrong. How arrogant would that be? Right? So of course I can be wrong. But my guess, kind of my base case, is that twenty twenty five could be fairly similar to twenty twenty two. And what I mean by that is that in twenty twenty two, in the first six nine months, the FED was aggressively raising rates. That was a kind of a change in behavior for central bank policy, and as a result, prices I think, you know, real estate market kind of slowed down a little bit, stock prices came down a lot. I think that could happen again this year, because again we kind of have a change of behavior. People that think Trump is just blustering with this you know, tariff stuff, I think they're way off base. I don't think he's just at all. I think he's absolutely going to do it. The question is how severe and how fast. But in my mind, there's no doubt that a regime change is taking place as far as trade policy in the United States, and the idea that you can go from doing business one way for thirty or forty years to a completely new way and not have any hiccups or volatility, to me, that's a little unlikely. So my guess is that we could have some volatiley and we're already seen it. The last couple weeks. Markets have been pretty shaky, stock market's been down. I think that could play out over the next six to nine months, very similar to how it played out in twenty two twenty two over the first six to nine months of the year. But I think as we get further into it and we get a little bit more clarity on what Trump is doing and how he's doing it, and the rest of the world sees that they may be better off investing in the United States, building the plant in the United States, that capital could then start flowing back in again. I think people forget. I mean, it's all over the hat, like make America great again. Yeah, he believes it. That's what he wants. He wants me manufacturing here, he wants he wants it easier for real estate, which means I think that it'll be interesting. We're having dinner in a little bit to talk about the interest rates, because one of the old one of the only ways to make real estate feasible is actually the cost of the debt. So that's going to be an interesting But he doesn't have full control of that, no, no, but. He has talked about releasing and using federal land and expanding the you know, things like that, and making zoning a little bit easier, and then you never know. You never know where it goes. Well, So somewhere related to that, I think I think this is kind of fairly important to understand, is that Trump, like him or not, he's a very opinionated person, you thinks, and he doesn't, and he's not going to back down from somebody just because it's an unpopular thing. And I you know, his whole make America Great speech or ethos, that's not a thing. It's kind of taken on from certain people like a negative connotation, but it doesn't need to be. And part of the whole milkshake theory was predicated upon this idea that was popularized back in the eighties when their late eighties early nineties, I guess is this idea. It's called the imperial circle, and the imperial circle it was popularized by George Sorows and so George Warre is a very famous successful global macro investor. And what George said was that if you have a country that has high interest rates, that's not necessarily a bad thing. If it's a if it's an economy that's growing, and the government is actively using fiscal policy to goose the economy. Because what you have is you have high interest rates, which attract capital, and then you got a turbocharge from the government behind it, you can actually get a boom. Yeah, and that's kind of the point that I've made. You know, high interest rates in the United States will pull capital into the dollar, the government spends money, and you know, and with Trump now puts certain policies in place, maybe he relaxes regulations, maybe he makes deals overseas that you know, you come build a plan United States that can have with relatively higher interest rates than the rest of the world. And Trump's you know, economic policies, we could see a boom. And the really interesting thing about all this is the person who brought this whole idea to George Soros, which George then implemented and made a bunch of money on. Is a guy named Scott Besson. Scott Besson is the new Treasury secretary or Trump. Oh so the idea that Scott doesn't understand this concept is crazy because he came up with it. And so if he and Trump are trying to figure out how do we, you know, make America great again, having lower interest rates or a weeker dollar might not necessarily be their number one priority. Yeah, I'm not saying that they're necessarily sitting down talking about this, but I would be shocked if they didn't at least understand that that possibility. Well, one of the issues we have is a massive housing shortage as a result of the last twenty years. So that's a fact if you just look at population growth and then see what supply was added, it's just as a fact. That's a big part of you know, when there's too much of something, the price goes down. Sure as George, as George like to say, the care for high prices is high prices, but you know so, and that's I think we're starting to see that now in the single family market. Well, you could tell me a little bit. I really like to know, like what you're seeing in the. So yeah, so we I play mostly in the commercial side, run on the multi family market. So what happened was when rates went up, interest rates went up, cash flow went down quite simply, So whatever the price was a year prior or two years prior, the higher interest rate makes really the value yesterday's price, right, because you know, everybody's trying to solve to IRR and cash on cash. So there was a bit of a lag, but it basically made the cap rates go up. So as cap rates, first interest rates went out, then cap rates started to go up as real estate started to stay longer. And then. The people anybody who had short term debt, didn't matter who, anybody that had any kind of maturity was caught in a pickle because the cap rate went up, the interest rates up, that means their values down. And normally it's not a big deal, but if you have a loan. Maturity, or somebody wants their money back in any form of fashion, as could be equity too, there's a you know, there's a line in the sand, and then there's a resize. Whatever that resize is so that's happening right now. So for example, if people were buying or building, let's say two years ago, three years ago, construction debt was four or five percent, now it's eight or nine. Yeah, that's just construction. So the same project, and ironically the cost to build a project might not be even that much different. So the cost if you just say, they're the same, but the cost of debt is so much more. And so the same thing on any time short term deal. So these office. Buildings, for example, that everybody's talking about, and that's a little different. There's operational issues in those and where people work from home and they're vacant, and you know, there's whole bunch of stuff going on with office buildings. But when the load is over, the debt matures in commercial right, then you kind of go back. You try to find another loan. Well, the value of the properties is lower than the loan. So the interesting thing, Brent, is that a lot of that stuff, though you know where it's going to go Middle America. It's because that stuff is sitting in people's pensions, it's sitting in their retirement plans, that's sitting in their formal case, and they might not even know that they're in it. You know, we're talking about you know, California teachers or Ohio teachers, or you know, we're talking about pensions. You know, this big pension money gets invested pretty heavily in that. Sure, and so they're sure there's bank exposure. But I think a lot of that, certainly the debt the equity's gone, let's just say that. So now we're going to see who's going to take the loss, right, And so I don't think the banking is it's kind of the small and regional banks. The big banks are way ahead of this. So you know, the big boys, they're not in trouble at all. Well, my guests that I'm curious to what you think, is that, if I have it right, most commercial debt is kind of small in regional banks. Ye, right, correct, and a lot of that's resetting this year, That's right. So just from a big picture standpoint, I could see commercial prices come down a lot. It would be a great opportunity for people with cash to go in and buy discorrect. Right now. I would think that the smaller banks are going to continue to get gobbled up by the big banks as well, because they those small banks and see their loan portfolio and disappear. And we've already seen it. We're seeing that, right, we've already seen that too. Yeah. Yeah, So it's really an interesting time because the underlying asset, the paper, is valuable, right, What's what's what's gone though, is the equity. So you you have institutional equity, which a lot of people and you know, a private equity or family office or whatever you want to call. Most of that is. It's it's institutional. A lot of times people don't even know, you know. And then you've got kind of the syndicators. You know, they put together a lot of little deals here and there. They're certainly exposed in a lot of areas for this for the same reasons, but generally it's not so bad. One question I have that you might have some insight on is with the rise in interest rates institutions pensions for one K plans, they can buy T bills and get four percent, or a tenure bond and get five close to five percent, right, And in many of these pension plans, their goals there is like anywhere from four to seven percent, Okay, So if they can get their goal just by buying a T bond er. Well, my question is is are you seeing a lack of these institutional buyers in the real estate space because they can just now buy a bond? Thankfully, yes, because and it's a great question. I actually don't know that anybody's asked me that, So that's precisely what's happened. So the cool part about that is it gives me a little window because I don't have to I'm not competing against them. So because their. Cash is sitting in those you know call it almost I guess governments considered risk free because they're in those kind of vehicles that's not out on the street. And so everybody's like, how are you buying deals? I'm still buying with kind of the high networth folks, right, but the ones that are on the shelf are are you know, these big groups like that because they're getting really good returns. But now they've seen the you know, commercial lot, especially in my world, multifamily reprise thirty you know, so one hundred million dollar deals now seventy or sixty five literally, and so now they're saying, okay, so now they're coming back in and they see that you know, below replacement costs, and so the stuff we just have bought, just we've about two very very nice deals in the last sixty days, both below replacement costs. And now the debt's not great, you know, but it's it's in the high fives, so it's not bad, but it cash flows in the high fives. And if it goes down, then you know, we can refinance on the way down. But if it goes up, we're fine because it's fixed rate debt. Yeah, sounds like you're in a good time. Yeah. So before we wrap up here, Santiago Capel, let's talk about that. What are you working on right now? And I know you're kind of about the leading edge. Well, so Santio Capital is a wealth management firm, and I've got you know, it kind of depends on how you define it. Whether a family is one client or two or three clients, depending on the number of people in the family. But I've got let's call it, sixteen seventeen clients that I customize their portfolios to them. So nobody's portfolio looks the same because everybody has their own unique things. But what I typically do is when I look at history, asset prices tend to go up into the right. Now, whether that's kind of a combination of human ingenuity and you know, better production and being more efficient, or maybe it's a result of fiat currency losing value or government policy. You know, it's probably a combination. But asset prices tend to go up into the right. So most of my clients have already made a lot of money. They don't come to me poor and ask me to make them rich. They come to me rich and want me to keep them that way right. And so I look and say, we're going to be allocated to assets because they go up into the right. But if you also look at history, you know that there's periods of time where you get these dramatic drawdowns along the way. So I am always looking for the monsters under the bed right, and I'm trying to figure out where does that rogue wave come from? What can go wrong so that we have a period where the assets don't go up into the right. How are we protected in case we run into one of those? And when you do that, you inevitably find monsters that don't exist, and maybe you put hedges in place that don't pay off because it didn't show up. But what happens is when that monster does show up, like twenty twenty or two thousand and eight or even twenty twenty two, is you don't have that twenty two percent draw down, You don't have that thirty percent draw down. Brent, thanks for being here, man, Thanks for being in Arizona. Thanks for having me