The Rug Pull on Global Liquidity | Brent Johnson on Unwind of the Yen Carry Trade, and the Exaggerated Rumors of the Dollar’s Demise

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Aug 8, 2024

Brent Johnson, an astute investor focused on global liquidity and currency trades, shares captivating insights on the evolving financial landscape. He delves into the potential unwind of the yen carry trade and its repercussions on Japanese equities. Brent argues for using the dollar as a 'cheap hedge' while maintaining a bullish stance on gold. He critiques misconceptions surrounding Treasuries and discusses the dollar's stronghold amid exaggerated claims of its decline. The conversation also touches on the intricate dynamics between U.S. capital flows and global economic stability.

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INSIGHT

Yen Carry Trade Unwind

Japan's rate hikes caused the Yen to rally, impacting the Yen carry trade.
This creates a potential rug pull on global liquidity as investors sell positions.

INSIGHT

Market Correction Context

The current market pullback is a routine re-evaluation and reset, not a crisis.
Pain is felt due to previous market highs, but indicators like high-yield and bonds are performing okay.

ADVICE

Dollar as a Hedge

Consider the dollar as a cheap hedge during crises, as it tends to rally.
A real crisis is needed for this dynamic to play out.

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Forward Guidance is sponsored by VanEck. Learn more about the VanEck Morningstar Wide MOAT ETF (MOAT) at https://vaneck.com/MOATFG.

This interview was recorded on Friday, August 2, during Friday's sell-off but before the vicious sell-off on Monday. he did talk about the potential for an unwind of the yen carry trade before the crash in Japanese equities and the yen carry trade was widely blamed for Monday's steep decline. But Brent doesn't really care about being "right" he is an investor first and foremost. On that point, I think people perceive that a majority of his portfolio is based on the surging of the U.S. dollar but as he says it's a very small percentage and he recommends using this "cheap hedge" (for example buying calls on USDHKD) as a way to comfortably go long risk assets. He is also (and has been) a bull on gold and he remains *not* a bull on Treasurys (which he thinks some incorrectly think he is).

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Timestamps:

(00:00) Introduction

(01:34) Brent's Market Views

(06:56) Brent's Dollar View

(13:44) VanEck Ad

(14:26) Interview Continues

(17:57) Potential For A "Fiscal Doom Loop"

(19:41) People Have Been Calling For The End Of The Dollar For Longer Than Most People Have Been Alive, And It Hasn't Happened. Brent Is Betting That Those People Will Continue To Be Wrong For At Least A Little While Longer

(20:20) People Have Been Calling For The End Of The Dollar For Longer Than Most People Have Been Alive, And It Hasn't Happened. Brent Is Betting That Those People Will Continue To Be Wrong For At Least A Little While Longer

(26:07) Hedging For The Dollar Milkshake In A Responsible, Risk-Defined Way

(36:46) Permissionless Ad

(37:53) Connection Between Dollar and U.S. Stock Market

(43:19) Potential For A Global Dollar Squeeze

(48:37) Why The Rest of The World Suffers From A Stronger Dollar

(01:02:00) Would Trump And Vance Ticket Succeed In Weakening The U.S. Dollar To Promote Exports?

(01:04:51) Michael Pettis' Frameworks That U.S. Fiscal Deficit Is Large Because U.S. Trade Deficit Is Large

(01:13:03) Does Weaponization of The U.S. Dollar Force De-Dollarization?

(01:16:17) Brent's Views On Economy And Stock Market: He Doesn't Think U.S. Is Headed For A Recession

Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.