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Synopsis: Brent Johnson, CEO of Santiago Capital, is joined by Steven Van Metre of Steven Van Metre Financial to discuss the most pressing issues on the macro landscape. After exploring whether quantitative easing (QE) and low rates are inflationary or deflationary, Johnson and Van Metre take a deep dive into the plumbing of the Treasury market and specifically the operations of the Fed’s FOMC. Van Metre explains why he believes the Fed’s policies have actually caused banks to tighten their lending standards rather than loosen them as the Fed intended. The pair then take a look at swap lines and the Eurodollar funding market as well as the effect a credit contraction would have on the U.S. dollar. Lastly, Van Metre talks about his Real Vision journey and how the knowledge he’s gained has helped him as a financial advisor

Why Brent Johnson Santiago Capital CEO believe that Banks will Crash the Market

Synopsis: Brent Johnson, CEO of Santiago Capital, is joined by Steven Van Metre of Steven Van Metre Financial to discuss the most pressing issues on the macro landscape. After exploring whether quantitative easing (QE) and low rates are inflationary or deflationary, Johnson and Van Metre take a deep dive into the plumbing of the Treasury market and specifically the operations of the Fed’s FOMC. Van Metre explains why he believes the Fed’s policies have actually caused banks to tighten their lending standards rather than loosen them as the Fed intended. The pair then take a look at swap lines and the Eurodollar funding market as well as the effect a credit contraction would have on the U.S. dollar. Lastly, Van Metre talks about his Real Vision journey and how the knowledge he’s gained has helped him as a financial advisor

BRENT JOHNSON: Hi, this is BRENT JOHNSON with Santiago Capital. I'm happy to be back on Real Vision, and I have a real treat today. I'm very excited and I think you guys are going to really enjoy listening and meeting this fellow if you've not already done so. I came across him probably two months ago when somebody sent me one of his videos. I watched it and I was like, I got to reach out to this guy and I got busy doing something else. Then about a month later, I got another one. Then I was like, no, I can't put this aside anymore. The guy's Steve Van Metre. Steve, welcome to Real Vision. I'm looking forward to talking to you today

STEVEN VAN METRE: Brent, thank you for having me and for being on Real Vision today.

BRENT JOHNSON: Yeah, absolutely. I think we're going to have a good talk. I know that we have some stuff that we agree on. We may uncover some things that we disagree on, but either way, I think it's going to be fun to talk to you. For anyone who's not already familiar with Steve, I want to set it up a little bit, because I just think everybody should follow him for a number of reasons. Number one, I promise you this is meant as a compliment but I think of him as the Mr. Rogers of Finance. Because he comes in here, and he's just a fantastic communicator. He keeps it very simple. He doesn't put on any airs. All his stuff is fact-based, and the most important thing is that Steve is genuine. You can just tell when you

listen to him, he's a genuine guy. He believes what he's saying and he's trying to help people. I think whether or not you end up agreeing with Steve or not, that doesn't matter. If you listen to him, you'll come away with a very clear vision of what he's talking about, why he's talking about and what his opinion is, there's not going to be any willy nilly what's he really think. Well, before we get too much further, why don't you just to give a quick background on who you are, what you're doing and how you got to where you're at? That'll provide a little context for what we do next.

STEVEN VAN METRE: Sure. I've been in the business for almost 20 years. I'm a certified financial planner and macro money manager. I manage a macro fund. I invented a long equity macro strategy called Portfolio Shield, which is based on the monetary system and the credit cycles with unique hedging algorithm that reduces risk during volatile and bear markets. I also, at least up until the pandemic, teach a class at my junior college on retirement planning, which is now available on my website free of charge. Then three days a week, I host a macro investing show, as you mentioned, on YouTube.

BRENT JOHNSON: Well, I think one of the most, I guess, biggest debate right now, for lack of a better word, in the global markets is the whole inflation versus deflation. I think that's probably been the big debate for the last couple of years but I guess it's heated up recently and the inflationist have, I would say, taken the ball over the last two or three months, especially since March. That's the zeitgeist time. Is it real this time? You have some specific opinions on this matter. I guess I would ask you just right off the bat, are the inflationist right, or the deflationist right?

STEVEN VAN METRE: The deflationist, which is a very small minority, they're absolutely correct. This is something that, as I grew into the macro space, which I think if you don't mind me adding that the way I got into macro, oddly enough, was I wanted to be a better advisor and as you know, Brent, once we get our licenses, there's not a lot of places you can go to learn how the system works. One day, I saw this ad from this guy named Raoul Pal, I had no idea who it was, for the service called Real Vision. This was back in the early days, where he ran that business cycle ad. I said, I don't know who that guy is. I don't know what he knows, but I want to know everything he knows, and then some. It's cool that my macro journey has started with Real Vision and here I am today.

In terms of inflation versus deflation, we can look back to Milton Friedman, the late economist, and he was really the first person that postulated that low interest rates were a sign of tight financial conditions and then high interest rates were a sign of loose financial conditions. We can actually test that today, which is really cool, because the way I approach things is when interest rates are rising, they're rising due to the fact that lending growth is occurring. When I go and look at the weekly Fed H.H data and if I see lending growth rising, then I should see interest rates starting to rise, because I approach them like a sponge. Their job is to come out into the monetary system and soak up those dollars being created.

Now, the other direction is why do interest rates fall? Well, would we look again back at the lending data and if we see a period where there's either no growth or a contraction like we do now, so I just looked before we went on, and all loans and leases at all commercial banks are contracted at around 2.5% on a rolling 90-day basis. What does that tell you? Well, it tells you financial conditions are tight, and that interest rates need to actually fall to do what? Will spur lending growth. The fact that we're not seeing really any lending growth tells us that we're more likely to experience inflation and deflation because interest rates need to fall to a level where they will create lending growth, and then that will turn into inflation.

What I like to say is that low interest rates are deflationary up until they become inflationary and that inflationary point is when there's enough people that come out into the market and start borrowing a lot of money.

BRENT JOHNSON: Well, it's funny because I've always said that low rates are deflationary as well, and some people agree, but there's a lot of people who just say, no, that's absolutely wrong. They're lowering interest rates, because I will spur inflation and I think the last 10 years shows that that's not necessarily the case. I think Europe is an even better example of saying that that's not the case. I've always used a meme to explain it. I've said, it's like in The Godfather when Sonny Corleone says, we're going to go to the mattresses. When things are bad, everybody just hunkers down and tries to outlive the other guy. They're not out there lending. They're not out there trying to increase their business. They're just out there trying to survive.

What I like about you is you don't just use a narrative-based explanation, you actually go to the websites, you go to the reports that the Fed and the banking system and the government's put out on a weekly basis and you actually show people how this is actually happening. What started you, and how did you figure all that out? Is that something that somebody taught you, or is that just a matter of you tried to figure it out and you got to a place where it all came together?

STEVEN VAN METRE: Well, as I started down my journey with Real Vision, and this was back in the early days when I think they had two or three videos, and I think there was a report service, I don't remember the name. I was watching all this content and digesting it. What's really cool, as we all know about Real Vision, is you get a wide view of terms of perspective. From there, I went and learned about macro voices and other places like Twitter where I could just absorb all of this information. I thought it's interesting that there's people on both sides and they would put charts up and graphs up and say, well, look at this relationship or look at that, and I would look at them and be like, it doesn't really make a lot of sense to me. What I had to do is start digging underneath the data and finding people who really under to the system, and like Dr. Lacy Hunt, and Geoffrey Snyder and it really vat out the people who really understood it, and then dig even deeper.

Whenever they said to read something, I went and read it. In fact, one of my favorite early podcasts, which is no longer round, is Adventures in Finance by Grant Williams. One of the things that really pushed me down this road was, in one episode, he was talking about the book, The Lords of Finance, which I'm sure, Brent, you've probably read. Grant said I read this book, and I read it every year. My thought was, well, Grant's a really smart guy. If he reads it, I should read it. I was just reading that book, I realized there's this whole frame of the monetary system that was, well, completely flawed, because here, you had these people trying to run this machine and they didn't know what they were doing. It worked until it didn't.

When I got done reading that book, I started reading every book I could find about monetary policy. What struck me as I continued this path was hardly anybody in our industry actually knows how this system works. It's like going down and buying a new car and the salesman pops the hood open and says, wow, look at that, and people are like, wow, that's really impressive. They don't know how it works. They just look at that and go like, wow, that's really cool. When you understand how the system works, it gives you a massive competitive advantage to not only getting through the data, but identifying what trends are more likely to come than not.

BRENT JOHNSON: Yeah, I could totally agree it. I did a period of self-discovery myself to figure out how it actually works. Once you crack that code, it does help a lot. It doesn't necessarily mean you're always going to be right, but at least it helps you understand the context of when things are said and just because somebody says something doesn't make it true. It helps your BS detector, nothing else. Well, let's follow that a little bit further because if low rates are deflationary and the banks, the Federal Reserve and other central banks around the world are holding rates down to make them lower, is QE inflationary or is QE deflationary?

STEVEN VAN METRE: That was something I struggle with when it first came out because I was on the wrong side of that, because I believe when everyone's telling me this, QE was inflationary, but it wasn't. That was really interesting to me, because the Fed has two policy tools. They have the federal funds rate, and then they have the monetary base or their balance sheet. It became odd to me, and this is where I started questioning more because I approached this industry like a little kid, a little kid asked his parents why. If you put up a chart or something, and I say, well, why is that true? Why does Brent believe that?

That really just helps me take a shovel out and just dig into this. When I looked at quantitative easing, it didn't make sense to me. Why that it was very clear that everyone agreed that when the Fed lowers the Federal Funds Rate that that lowers your rate? For some bizarre reason, everyone thought that quantitative easing led to higher interest rates on the long end, and that just really didn't make any sense to me. As I dug into what quantitative easing does, is the Fed is actually going out and buying bonds. The common misconception, and in fact, we've been seeing this on Twitter here over the weekend, is that people believe that banks are directly getting that money back. If I was to say buy your watch off of you, everyone would assume that, hey, here's money, that you actually have it but that's not how quantitative easing works.

Instead of the banks directly receiving that money back, the Fed takes it and places it in a reserve account with the bank's name on it inside an account at their Federal Reserve member bank. I look at it like a uniform gift to minors account. I can go to the bank, if I'm under 18, because I hear my parents talking about it and I go to the teller said I like my money, they could say, well, we have an account here with your name on it, but it's not yours. It belongs to your parents. I view this, and it's not the correct term but it makes sense to me, is I call it a collateral account. That should the Federal Reserve never return those bonds, which we could argue that they'll probably be on the balance sheet in perpetuity, but let's just say that Congress comes in one day and wipes out the Fed's balance sheet, then that cash would return to the banks.

In the meantime, the banks cannot touch it. Now, technically, they can lend against it, but they really don't need to do that. When you look at the relationship of QE being deflationary or inflationary, the Fed is buying something off the banks and not paying for it. They're not returning that cash. The Fed is actually removing "liquidity" instead of adding it like they claim they are.

BRENT JOHNSON: Yeah, and I think that what you've just touched on is such a key thing to understand, and it took me a long time to get it but once you see it, it's like holy cow, and it changes everything. I think the interesting thing is that people who dig into this, and they go through the steps, you can do 98% of the work and do 98% more than anybody else and you'll get to the point where the Fed is giving cash back to the banks, and they're taking the bonds. Therefore, you feel like you've done all this work, you finally understand it, you've got a leg up on everybody else but it's actually that last 2%, where the details lie, and the fact that the Fed is not giving the banks cash, and they can't use the proceeds from the bonds that they're selling, "selling" to the Fed. Once you realize that, you do realize that QE does not work the way the narrative says it does. It makes all the difference in the world.

STEVEN VAN METRE: In fact, it makes sense when you think about it, that it's designed to suppress or lower interest rates. The way people have to understand QE is it's just a swap and reserve. Banks are holding Treasury securities and reserve from bills, notes and bonds and the average maturity is probably less than seven years because there's more bill issuance than anything. All the Fed is doing is just swapping it with an overnight maturity of cash. The banks are actually-- you think about it as they're losing from that situation because a bond pays far more interest than cash.

They have no choice. They have to go along with it, because all the Fed is doing-- and this is interesting, because if you go back to the Great Financial Crisis, there's a point in the charts where you see this massive short squeeze in the bond market, interest rates just go boom, straight down. Well, what the Fed is doing, and I'm not sure they realize this completely, is they're actually removing Treasury securities from the market. They are creating the biggest short squeeze out there and the market doesn't realize it, so the market thinks, okay, this is really inflationary. What would you do from a money manager position? Well, I got to short the bond market, dump all my bonds, and then all of a sudden, you get squeezed because bond prices are rising, and people go like, I don't get it.

Well, look at the progression of money. How does money eventually get to the Fed? Well, the US Treasury has an auction. The primary dealers show up at that auction and bid on new issuance, then they take that new issuance, which under the current amount of 80 billion a month, is entirely flipped of notes and bonds because right now, the Fed is not buying bills, even though they claim they are. You can look at the data and see they're actually not buying bills right now. The primary dealers didn't flip those to the banks. Now, the first step is people think, alright, well, interest rates are going to go up, which means the primary dealers are going to buy an option and then in between the time they sell to the banks, they're going to lose money because interest rates go up? I don't know about you, Brent, but I don't think primary dealers are in business to lose money.

Let's keep going. Now, the bank gets it. Now, in between the bank holding it and then flipping it to the Fed, interest rates go up and they lose money. Now, all of a sudden, banks are swapping reserves with the Fed and getting fewer reserves? Doesn't make any sense. Now, what makes sense to me is the dealers are really smart people. They want to make money. They're going to flip to the banks for a profit. Now, the banks want to get more reserves off this exchange, they're going to flip to the Fed for a profit. As a result, they're going to drive interest rates up on top of the fact that the Fed is actually reducing supply.

I did the math and looked at July's data, where the Fed bought 80 billion a month in Treasury securities and the primary dealers took from auctions say-- I want to say around 72 billion or so, I could be slightly wrong on the number, which tells me the primary dealers have to go out to the market and take up more supply to meet the demands of the Fed. When you start connecting all the dots, it becomes very clear that not only is it a deflationary, it's going to lead to a massive short squeeze in the bond market.

BRENT JOHNSON: I guess that would put you in the bond bull camp?

STEVEN VAN METRE: 100% my friend.

BRENT JOHNSON: What's your nickname again?

STEVEN VAN METRE: The bond king.

BRENT JOHNSON: I love it. I love it

STEVEN VAN METRE: I've stolen that from Jeff Gundlach, who has yet to defend it. I do have a crown that I wear from time to time in my show. I don't know if he has a bond king crown, but I do.

BRENT JOHNSON: I think one of the questions that everybody out there that will be listening to this and was under the impression that the Fed is giving the banks cash when they buy the bonds from them. Now, we know they're not giving them cash. They're crediting their reserve account at one of the regional Federal

Reserve Banks. If that's the case, then where are the banks getting the cash to buy the new issued treasuries that the primary dealers buy from the Treasury?

STEVEN VAN METRE: They're getting it from the economy through their normal business of collecting interest fees and other things that banks do to get money. That's also what's interesting is how it makes it deflationary because the Fed is inadvertently pulling liquidity from the markets and yet you hear Chair Powell-- and he's not the first Fed chair-- to come out and say, well, we're pumping liquidity into the markets. Then you hear the Trump administration-- again, not the first presidential administration-- to say the same thing. It's odd because it's doing the exact opposite yet they want people to believe that they're injecting liquidity and creating inflation to get people to go out and spend money to create inflation. It's all psychological.

BRENT JOHNSON: It's all psychological. In a way, the Fed is bluffing. The Fed is saying that we're going to do this and it's going to be inflationary, and therefore, people hear that and then they say, well, if it's inflationary, then I need to get in front of that. Then that influences their actions, and other people see the banks do it or market participants do it so then they do it. It's a knock-on effect of the Fed's initial, I guess, comments. Is that how you would describe it?

STEVEN VAN METRE: Exactly. What's interesting is that people still struggle to believe that even after they hear the explanation, and if you go back and study the Federal Reserve Act, which I encourage everyone to do, and you can go back and you only have to do is read the Federal Reserve Act of 1937. It's really clear because it says what the Fed can and can't do in terms of buying Treasury securities and now mortgage-backed securities. The Federal Reserve Act is really clear about one thing in general, they can't print money.

I view the Fed as like a purpose built and like a firefighter. If my house is on fire, I call the firefighter to put it out. I don't expect that while they're there to say light my neighbor's house on fire or if I need help lighting something on fire, I don't call them. Well, that's the Fed. They are a purpose built institution to quell inflation because when they came into existence, deflation was an issue. No one sat around and say, man, we've got this deflationary problem, we need a central bank to print money. No, the problem was inflation.

They created the Fed and the rules around the Fed is so restrictive. They can't create inflation. They couldn't do it if they tried. All they can do, which they figured out over the years that their best policy tool is forward guidance, or as we call it, jawboning. If I can get-- Brent, if I can get you to believe there's inflation and go out and buy a new car, a new house or go finance something, well, that creates dollars, and those dollars get created. Well, that is inflation if I can get enough people to do it. The Fed, yeah, doesn't have the ability to do what they want. They just want people to think they do because no one really understands how long the monetary system actually works.

BRENT JOHNSON: With the common misperception being that the Fed prints the money and puts it into the system and that's inflationary, but with the actuality being that it's the commercial banks that print money out of thin air and they do that via the extension of credit.

STEVEN VAN METRE: Absolutely correct. I would argue that if the Fed could print money, interest rates wouldn't be where they're at and the dollar would be much lower. We see a lot of other things over the last 40 years that would validate the fact that the Fed could print money and they can't.

BRENT JOHNSON: Alright, let's go back and let's focus on one issue, because I can already hear everybody out there whose on the opinion that the Fed gives cash to the banks and then the banks use that to go buy bonds or do whatever they do it. Let's go back and focus on the reserves. We've explained the fact that when the Fed buys the bonds from the banks, they do not give the banks cash, what they give them is-- they credit their account of reserves at the Fed. It actually doesn't even leave the Fed. It just credits their account at the Fed. Then people will say, well, they use those reserves to go buy the bonds. Why can they not use those reserves to go buy the bonds?

STEVEN VAN METRE: Because they're not theirs. It's simple. Let's say I'm going to borrow your car--

BRENT JOHNSON: Well, let's explain that. Let's explain while it's theirs, but they're not usable. Let's explain that because I know we had this big argument over the weekend on Twitter. I get the question all the time. I'm sure I'll get it 100 more times, but let's explain why they cannot use the reserves that they are credited with at their account at the Fed to go out and buy more bonds.

STEVEN VAN METRE: Because they don't have access to the money. It's in their name only. It's held at the Fed by the Fed, but it's not theirs. Like I said, I'll use an example. Let's say you have a real expensive car. You have a fryer or something, and you're going to loan it to me for the weekend. It's like, Steve, I've seen your driving record and stuff. I don't really trust you and so I take a bunch of money and I said, okay, Brent, I'll put it in an account for you with your name, but it's a collateral account. I leave, take the car and you go like, gee, I've been wanting to get rid of that thing. You go down to the banks, and hey, I like my money, they go, it's not yours, Brent. It's not yours. It's not until the we can prove the car has not been returned, or damaged that you can have it.

Well, this is the same case with the Fed, is it's you have to view it as a collateral account. The banks, it's in their name only, but they cannot touch it. Now, they can lend against that if they want to risk their own capital, and a borrower has to risk their own collateral, but the banks have plenty of money. They don't need to do that, but they cannot touch the money. The Fed restricts that from happening.

BRENT JOHNSON: Very good explanation. Now, that leads into-- and I know you're a fan of Lacy Hunt, and I'm a fan of Lacy Hunt, and there's been times where I've disagreed with him and there's been times where I've agreed with him but throughout it all, he is as smart as they come. I think you'll probably agree with that. Not only that, but I've never met him but from what I get, he's one of the nicest people in the world, like a true gentleman. He has said ad nauseum-- and you can also hear the frustration in his voice sometimes when he's explaining this over and over that the reserves cannot be used. He said recently that if something was changed-- well, he said that if the Fed could ever use their liabilities as legal tender then inflation happens. These reserves at the Fed for the member banks, those are liabilities to the Fed. Is that correct?


BRENT JOHNSON: Okay, and since they can't be used now, he has always said this is why we are in a deflationary environment. The point I think that you, I, and again, I don't want to put words in his mouth, but as I understand him, he's saying, if something were to change, and Congress were to authorize the Fed to use their liabilities as legal tender and return those liabilities to the banks, then the banks would have the cash, and then the banks could spend and do whatever they want, and that is the wildfire inflation scenario. Do you agree with that?

STEVEN VAN METRE: I agree with that hundred percent. In fact, I would encourage anyone who has not heard of Lacy Hunt to immediately start following him and reading everything he puts out, because in my opinion, that guy is probably one of the smartest people in terms of the bond market that's alive today. I think you posted on Twitter, if you could spend an hour with someone, if I could spend a weekend with that guy trying to absorb everything he has, I would. I think recently, he's been misinterpreted because he's talked about these becoming cash, these liabilities coming out. People interpret it like he's worried about it.

No, no, I don't think he's worried about it. He's just explaining, what if, and I don't think he believed for a minute that Congress is going to come out tomorrow and say, okay, balance sheet for the Fed, let's take the eraser to it. He's just saying, look, if that happened, it would be wildly inflationary and it would be. Because the banks will all of a sudden get this cash and what would they want to do with it? Get rid of it.

BRENT JOHNSON: Well, I think not only that, but right now, like for the fed to-- the Fed is a reactionary agency. They're not a proactive agency. For them to take a step like that, which is a huge step to go from reserves not being cashed to reserves being cashed is an enormous-- that's a Rubicon bigger than any Rubicon that's been crossed so far. I won't sit here and say it can't be crossed, and that it won't be crossed. It very well might be crossed at some point, but for that to be crossed, something has to happen to push the Fed to do it. Would you agree with that?

STEVEN VAN METRE: Right. I think you Lacy points out, I'm sure you've heard this, that the Congress won't do this on their own. It was something to have the Fed have to go to Congress and say, look, you really need to do this. I personally don't think Powell's the right guy. The only reason I say that is because he doesn't have a PhD and he's not written anything. He's just a really successful guy. You don't want to go down in history of a guy who doesn't have a doctorate in some papers to hide behind to do some bizarre monetary experiment. You must want to leave that to someone else who can talk their way out of it.

Yeah, I totally agree that that would have to happen with the Fed directedness. I don't think he's a right guide. I know Lacy he doesn't think he is either. It would have to have massive deflationary shock to the global economy and no recovery. Now, is that actually possible? Yeah, it absolutely is. Because with zero interest rates, we're pretty much at the endgame for monetary policy and I don't think people really understand why that is, but zero interest rates are practically the dumbest thing a central banker can do because there's no way out of it. At least under the current laws, the Fed has no way out.

BRENT JOHNSON: That leads into another topic, perfect segue because you have said on your shows, and I don't remember exactly which one it is, that the bank-- and this might be somewhat controversial. Some people might say, of course, but other people might think it's controversial. You already know what I'm going to say is you have said that the banks are pulling rates lower because they are trying to engineer an equity market correction or crash or however you want to call it, I'll let you put your own words on it, so that the rates will go even lower. Do you want to explain your theory on that? Correct me if I have it wrong, I don't want to put words in your mouth.

STEVEN VAN METRE: No, you're right. I've used the phrase, the banks are going to crash the stock market. If you look back, my whole thesis is we're going to see a replay of the Great Financial Crisis, just only bigger. I think I call it the 2.0 plus. The banks really engineered that whole crash though. I don't know if they intentionally meant to do it but it comes back to where we started this conversation, is that low interest rates are deflationary. Now, if I'm a bank, what do I want? I want to lend money because I make money that way, and some people say, well, you don't make a lot of money with low interest rates. Don't worry, I got origination fees and all kinds of other fees that you've never heard of that I'm going to hit you with so don't worry about that, I've got that covered.

Right now, if we look at lending growth, as we mentioned earlier, on a rolling 90-day basis, all loans and leases on all commercial banks are at minus 2.5%. That is not good. That's a contraction in credit. The only saving grace is the residential real estate market, which on a year-over-year basis, running a 4%, but on a rolling 90 days, 0.5%, which is super weak. We know commercial industrial lending is in contraction, we know credit card lending is in contraction, and we're in the middle of a massive pandemic. As a banker, what am I trying to do? One, I need to get people borrowing and number two, I'm really worried that all these people that are in deferment are going to be in default state at some point.

What do I want? Well, I need lower interest rates. I can't actually make interest rates go down. I really need some help from the Fed. I look at the relationship between the large commercial banks as the children of the Fed. Coming out of the Great Financial Crisis, the large commercial banks, they really took all the heat for this and it was directed toward them. Although, I'm sure, Brent, you and I could agree that it wasn't entirely their fault. Did they play a role? Oh, absolutely. They did. Was it entirely their fault? No, but they were okay with it. They took the blame and came out of it weaker than before, and they have all these regulations that they probably didn't like, and still don't.

They were cool with it, because up until recently, they've been able to buy their shares back and that made him happy because its executive like to enrich themselves, do share buyback program, and everything was really cool up until the end of last quarter, when they didn't pass the stress test, or they didn't get the right score, which I always find amusing because they're open book tests. They're given the test ahead of time, and then they didn't get it-- yeah, so that's like okay. What did the Fed come out and do? They said one key thing, they said, say no more share buybacks. Then all of a sudden, despite all the liquidity the Fed was injecting from its trillion dollar QE and subsequent 120 billion a month of QE, lending standards are now almost as tight as they were going into the stock market crash of 2009.

We look back to the fourth quarter of 2008, and we look right now, you see lending standards have massively tightened. The way I view this is the Fed said, okay, banks you're in trouble, go to your room, and you don't get dessert or whatever. The banks going in there and they were pouting. They said, you know what, no, this isn't how it's going to be. We're going to get even, and how we're going to do that? We're just going to tighten lending standards, and we're going to contract credit. We're going to do it until things start to crumble. Because what people don't understand about a debt-based monetary system is you need the debt to expand for the system to grow. When the debt starts to contract, well guess what? The whole system starts to fall apart really quickly, and the banks know that.

They're just going to sit here and say fine, we'll just constrict credit until things start to fall apart. Then the Fed comes in with a bunch of QE to lower rates, but the catch is that contraction in credit, once that ball starts to roll, it doesn't stop real fast at all. In fact, it takes a while to stop. Then you have this massive deflationary shock of whatever the Fed's going to come in and do untold trillions of QE and the unintended consequences, because you can't do monetary policy without having a penalty, that unintended consequence is you crash the economy and risk assets such as stocks, real estate, everything starts coming crumbling down just like it did during the Great Financial Crisis.

BRENT JOHNSON: Very good explanation. Let's take this one step further. If the banks are not actually getting cash from the Fed, and the Fed is actually removing liquidity rather than pumping liquidity in, why has the dollar-- well, the dollar spiked in March. In March, it's really-- I'm going to take a step back, and I'm going to come back to this question. At the beginning of March, the dollar was around 96 or 97. Within six days, it fell to 94, 95-- it had a big move down. On March 9th, I think it was like 94, 93. Nine days later, it was at 102 or 103, something like that. Again, I don't have the chart right in front of me

STEVEN VAN METRE: Yeah, it got to 95 and up to 103.

BRENT JOHNSON: That happened over nine days, I believe, or 11 days, something like that. Then over the last four months, the Fed got control of everything. It's funny, I even sent out a tweet the other day of the high and I said, if you're new to this dollar game, and you're a bull, just be aware because the Fed is going to do something and it's going to hurt. Now, I thought it was going to hurt a little bit. I did not think that they were-- I thought they'd get it back to 96, 97. I did not think they were going to get it to 93, but theyhave. They got it to 93, 92 year to date. If the Fed is not actually giving cash to the banks, and they're not actually injecting liquidity, they're actually tightening standards, what has happened that the dollar pulled back from 102 or 103 to 92 or 93?

STEVEN VAN METRE: Yeah, I've an opinion on that, how valid it is. Let's talk about how it shot up really first, because a lot of people think that it's the Fed that weakened it. I completely disagree with that. When I see repo loans popping up, to me, that is the monetary system starting to fracture. You see, I just view it as the globe and I start to see these cracks because what the monetary system tries to do at all times? Now, I don't know if this is a common belief, but I think the monetary system is self-regulating, but the problem is the Fed and investors or speculators get in the way. Well, the monetary system was tight and we see the dollar start to rise and that was due to the repo loans saying, look, folks, we have a dollar shortage, we've got problems. If you don't do something, then asset prices are coming down.

Now, everybody then saw this decline, as you pointed out, and they credited the Fed because the Fed did quantitative easing, and that injected all of this magical liquidity. I don't think it had anything to do with the Fed. I think the Fed got lucky. In fact, the Fed gets pretty lucky frequently, because other things happen. What was the thing that happened in March? Well, we started seeing government transfers, and the economy shut down. People started putting loans into forbearance. I started to ask myself, well, how could the dollar fall? I had to go back to simple supply and demand.

Well, if the dollar is falling, it means them. Why didn't people need them? Well, one, they had more money than they had before when they were working. Number two, they couldn't spend it. Nobody could spend when everything was shut down for the most part. Number three, their loans were in forbearance, so there was no demand for dollars. It starts to make a lot of sense that the dollar would weaken and of course, the Fed gets credit for this, which is great because the next time it happens and the Fed does more QE, everyone's going to think the dollar is going to weaken and I think the dollar is going to go suborbital, just the opposite, because I know that QE pulls out liquidity and it was partially due to the repo and the QE that caused that dollar spike, it was until the fiscal showed up, that all of a sudden, the demand for dollars subsided.

BRENT JOHNSON: Let's take this up, but it has happened, the dollar has gone from 102 to 92. We're at a critical level on the dollar. The dollar bears insists that it's going to 85 and then 75 and that it's going to zero. I've insisted that we are overdue for a bounce. It's the most oversold in 10 years. The positioning is the most bearish in 10 years. The sentiment is the most bearish in 10 years but I cannot rule out the fact that we are at an important level, and I would say that over the next three or four months, anything can happen. I'm ready for anything.

However, based on the design of the monetary system, as you and I know, it's designed, the potential for a dollar spike always remains. Whether it actually shows up or not, I can't say for sure. I certainly have an opinion and I've made that fairly well known but I can't guarantee it. I know based on the design of the system, there's always more debt than there is money, and so there always remains the possibility of a short squeeze on the money that underlies the debt.

You and I both agree that we're in a deflationary scenario until something changes. My question to you is, if you think the dollar is going higher and we're set up for a big spike in bonds and the dollar and you know the system is deflationary, if you were a central banker, and you really actually did want to create inflation, how would you do it?

STEVEN VAN METRE: If I was a central banker, I'd probably quit immediately.

BRENT JOHNSON: I would do-- that's my answer. You can't have my answer-- [?] and solve the problem

STEVEN VAN METRE: Honestly, if I was a central banker, I'd probably hire Jeff Snyder and Lacy Hunt and hope, whoever else they said to do it, because I would just take a backseat and say whatever those guys say, we're doing. I think the Fed has gotten away with this weak dollar, and part of me actually believes that they believe it too. I thought it was interesting. The bottom of the dollar here coincided almost perfectly with the fiscal stimulus ending. It starts to make sense because if I go for more than 100% of my pay to you say 70%, or whatever it is, what do I suddenly have? Oh, a demand for dollars.

The other way I see it, I have maybe a stronger opinion on the dollar because I'm highly convinced that it will go up, because it's part of a three-legged stool that I call the trifecta of tightening. Because what does a weak dollar mean? It means financial conditions are loose or loosening? What does a strong dollar means? It means they're tight or tightening. Let's look at the three major players. Well, we've got the bond market, which is saying, hey, financial conditions are tight. We've got the banks, which are tightening lending standards. Then over here, you've got the dollar hanging out, saying, no, everything's cool, man, everything's loose.

Well, you've got two of the three parties saying the dollar is wrong plus, you've got no lending growth. My view is the dollar is the odd man out. It's just only a matter of time before I say it goes suborbital. Now, my view is it's going to blow through 103. I don't know where it goes. Maybe, Brent, you've got a price target. I just think it's going to go way higher than most people think and it's going to be like an out of control bowling ball at a [?] competition. People are just not going to see this thing coming.

BRENT JOHNSON: Let's touch on one point before I forget. You might know the answer to this. I thought I knew the answer and I may be wrong so if you happen to know, I'd love to know. You've talked about the deferment of dollar demand because you didn't have to pay your mortgage, you didn't have to pay that invoice, you weren't going out to buy those new pair of shoes or whatever it was, there's been this delay of dollar payments. I think the key in that is that there's been a delay and a deferment. They haven't been forgiven. There's a delay in a deferment.

My argument has been that when that delay and when that deferment is over, whether it's due to they just can't defer them any longer, the businesses can't afford to defer them any longer, or it's because the economy opens back up, but for whatever reason, when that deferment ends, not only will there'll be the regular demand, but all those deferred payments that were deferred will now spike. I've recently heard that maybe that on some of those deferments, they don't all come due when the deferments end, maybe they've been pushed to the end of the loan or the end of the lease or the end of the security, the maturity.

STEVEN VAN METRE: I do. In fact, on my show, I talked about how, hey, guess what's going to happen because of the first loans went into deferment, had to be in March, which means next month, the first ones come out, and as you pointed out, not only are you going to have the six months lump sum, but you have the seven payment. That is really interesting to me, because in a debt-based monetary system, as we've talked about before the show, there's always a shortage of dollar. Well, when do I really need dollars? When I have to pay my loans. That's why I go to work and why people do what they do is because they need to go out into the pool of dollars where there's not enough and fight and get there to make their debt payment.

Well, on government-backed loans, you can take that deferment, stick it to the end, and then recently I said now, you can actually get a 12-month deferment, but if you have a non-government-backed loan, say I've got a jumbo mortgage because I live up in the Bay Area or somewhere like that. Well, that's not government backed. I can defer for six months. I'm not sure if you can do the full 12, but at the end of the deferment, I've got that lump sum plus the payment. I believe that's true with credit cards, car loans, and other type of non-government-backed loans. Now, will the banks make that adjustment for people? In the end, it doesn't matter. If everyone's loan gets-- deferment gets moved to the end, they still have to start making that payment and with 28 million people on unemployment with less income, it's still going to create dollar demand.

BRENT JOHNSON: We've touched on the banking system, we've touched on the deflationary aspect of it, we've touched on the dollar, what we have not talked about is the Eurodollar. It's my belief that the heart of the beast or whatever, however you want to describe it, that the true problem lies with the Eurodollar system. The fact that is screwed up as the Fed is in the United States, there's not even a Fed outside the United States to even try and deal with the problem in the Eurodollar market. Now, I don't want to put any words in your mouth again, I'm going to let you describe it. If you see an issue with the Eurodollar market, I'd love to hear your thoughts on it, and what you see the real problem is.

STEVEN VAN METRE: Yeah, there's a massive problem in the euro dollar market. I explained this as world dollar liquidity which I stole the concept and the formula from Lacy Hunt, but I pieced together how it works, which is dollar start out in the US because that's really-- from the initial beginning of the system where they have to start. The way they move overseas is in preferentially a US consumer will borrow money and spend it abroad on a foreign produced goods or services. Now, it hits that company's bank account and they don't need-- in Germany, they don't need a lot of dollars. Now, maybe that auto manufacturer needs some dollars to go out and buy stuff but they don't need the most of it because they've got to pay their employees in euros or in another country, in yen or whatever it is.

They go to their bank and swap those dollars for local currency. Now, you've got effectively the Eurodollar being born. You have the US dollar sitting in a foreign bank account. I've got that correct. Now, that bank can lend against that, which is really quite fascinating that you have a non-US bank that can create dollardenominated loans which when you first hear it, you go like, what, but it's really cool and also bizarre at the same time. They're out creating these dollar-denominated loans, creating dollar liabilities. Now, whenthose banks stack up enough dollars, they don't need them so they swap them to their foreign central bank for local currency. Then when the foreign central bank stacks up enough dollars, they become really inflationary, and so they need to get rid of that inflation, which is a whole another concept most people don't understand is those foreign central banks then come to the US Treasury auctions, buy a bunch of bonds. Then that money gets back into the US for the federal government spends it out into the real economy, and the cycle continues.

When the Fed raises interest rates, they contract the number of dollars in the system. The problem is it mostly affects foreign dollars, which was bad. Then we had a tax cut, which at the time, I said I'm really happy to get a tax cut, but we're going to look back and say that was really a bad idea, because what was one of the big tenants of that tax cut was repatriation of dollars. Again, more dollars out of the global system, and then you had the pandemic. That was terrible because not only could people not go buy foreign produced goods and services, we couldn't go on a European vacation or Mexican or wherever you want to go in the world to get dollars out there. That didn't happen, so the system got starved.

As a result, people have been chirping about, oh, look, the foreign central banks are out selling their Treasury securities, oh, it's going to be inflationary. It's not how the system works at all. The way it works is when there's inflation, and there's a lot of dollars being created in either the Eurodollar system or by US consumer spending abroad, foreign central banks tamper that inflation by buying Treasury securities. When there's a dollar shortage, well, guess what? They've got a huge surplus of fully liquid Treasury securities that they can go dump to get the dollars. Yeah, is there a huge problem in the foreign markets for dollars? It's outrageous and it doesn't appear that anything we're doing right now is going to fix it at all.

BRENT JOHNSON: Have you followed the swap lines much when the Fed extended swap lines to the foreign central banks?

STEVEN VAN METRE:: I did, and those are some of the things that's like, okay, it makes sense why we're doing it. Then people say, well, that's going to turn into inflation. It's like, no, they have to pay them back. If Brent extends me a line of credit, it's not perpetual. I'm pretty sure he would like his money back at some point. What's the challenge with those swap lines? They have to be paid back in dollars. It was like putting a band aid over a massive wound on you. Your artery is cut and you're throwing a band aid over it.

BRENT JOHNSON: It stops the bleeding, but it makes the wound underneath that bigger. That's the analogy I use. Steve, again, we've talked a lot about deflation and why we think it's a deflationary environment, at least for now. I know one of the questions that we will get is even if people who previously believed that the banks were getting cash now believe that they are not getting cash, I know one of the other questions they will ask is, okay, but the government is spending more than they ever have. They're running a bigger budget deficit than they ever have. When the government spends the money into the market, that goes right into the market, it doesn't get trapped in the banks, and that will be inflationary. Do you want to comment on that at all?

STEVEN VAN METRE: Yeah, and I think this comes back to the whole rising M2 is inflationary, which is something I used to believe but I no longer in, and the answer is it can be or sometimes is. It all depends on when the government gives somebody money, what do they do with it? Now, if they go out and buy a new cellphone or something and finance it, well, yeah, that's inflationary. If they use it to pay down their credit card debt, it's deflationary. Government debt inherently is deflationary because it crowds out the real economy.

A great chart that Raoul Pal has used is a velocity of the M2 which he charts against the labor force participation rate, which is really interesting because it says, hey, a lot of these jobs that were lost aren't coming back. While the velocity of M2 is very complex, and I'm not going to pretend that I can explain it, what I have done is I've taken the total government debt and I've taken that on chart and inverted it against the velocity of M2. What it's telling us is the more the government borrow, the more they're crowding out the private industry and the more deflationary it is. As far as I'm concerned from someone who's a bond bull and dollar bull, bring it on, keep borrowing. It won't last. If there is an inflation, it will be transitory.

BRENT JOHNSON: The next question is that it's a new paradigm now because the Fed is not just buying treasuries from the banks, and it's not just the government running bigger deficits than ever before but the Fed is now buying ETFs and corporate bonds and that's surely inflationary. Do you have a thought on that?

STEVEN VAN METRE: Yeah, if there's ever anything the Fed has done that looks and acts and could be considered money printing, there, you got it. The issue that I have is I don't think they were buying bonds just to buy bonds, I think the Fed realized that there was a problem in the corporate and high yield bond market or one that was coming, because we knew that all of these corporations didn't trust the Fed to bail things out. What did they do? They went out and pulled all of their short term credit lines or revolvers and they did that to stay in business.

The second phase is they knew they're going to eventually either issue stocks or issue bonds. Now, the problem of the corporate bond market is it's only so big. To have this massive flow, this tidal wave of new issuance hit it would have caused interest rates on the corporate side to go up. It's quite the opposite of how the Treasury market is affected. Now, what does the Fed not want right now? Well, they don't want corporate rates to go higher, because we're in year one of I think of a five-year window, and you can correct me if I'm wrong, Brent, where there's a massive amount of corporate loans that are coming due. This would be a really big problem for corporations, not only to be financing the revolvers at higher rates but they have all this debt coming due at even higher rates and the whole system will blow apart.

I viewed it as the Fed was trying to take some stress off of it by reducing the supply of corporate bonds in the market. Then they're also trying to reduce high yields, because they know that some of these corporate bonds are going to default, or have their rating drop, or they'll flow into the high yield space and again, there just isn't enough people in the high yield market to absorb all of these bonds either. I just look at the Fed is just trying to take pressure off of that. I don't think they have any other intention of printing money. While it looks that way and it feels that way, I don't think that was their real intent. Now, maybe if they scale it up, it is, but again, I don't believe that's why they did it.

BRENT JOHNSON: Yeah, I tend to agree. The analogy I've used is that a lot of these programs, the Fed is not inflating things. They're inflating it from a deflated position. They're trying to keep the bucket full, even though the bucket has a bunch of holes in it. The bucket is maybe getting new water in it, but it's not getting more water in it. Now, we're going to get to a part where I think we may disagree. I think we're going to initially agree and then I think we're going to get to an area where we may disagree, but let's see. We both agree that low rates are deflationary. We both agree that the dollar is the odd man out of your three-legged stool and that the dollar is going to rise.

People might be surprised at this but when that happens, I think that US equities are going to fall as well. I think we're going to have another downturn in US equities, or at least another correction. Maybe it's a crash, as you described. Whether it's a crash or correction, I agree with you the next time the dollar spikes, risk assets, including US assets or US equities will fall. I think we're probably in agreement there. What I think happens after that, though, is that the central bank, the Fed will come out and do printing out or whatever, or print, that's not the right-- we've already said that's not the right way to describe it, expand their balance sheet.

I think the balance sheet could easily go to 20, 30, 40 trillion, won't surprise me at all. I think the rest of the world will do that as well. I think we are going to get into a scenario where the Fed is able to finance their deficits easier than the rest of the world will be able to finance their deficits. As a result, I think we're going to have a period where interest rates start to rise outside the US, not because things are good, and they're actually getting some inflation and growth but because people don't want to invest in those bonds because of counterparty risk. I think it's going to start in the emerging markets. It'll move its way up to the middle markets and it will eventually hit the bigger markets.

As that starts to happen, and as interest rates start to rise, and people start to sell foreign sovereign bonds, whether it's US investors selling them, or whether it's foreigners selling their own sovereign bonds, I think one of the areas that will get the flows that are coming out of sovereign bonds is US equities, big large cap US equities. I think that is the scenario. That's the milkshake. The rise that we've had in equities in the last three or four months, that is not the milkshake. It's pretty clear the milkshake has not been working for the last three or four months. I don't think anybody would say that it is and I certainly wouldn't do it, but I do think that that potential is still there. What do you think about that?

STEVEN VAN METRE: Well, when I first heard you explain it to me, I said, it doesn't really make any sense. Then you explained to me I think about three more times, and I said, it doesn't make any sense. Then a few hours later, I texted you with my answer. Let's start from the beginning, because I really do agree with many of your points and the reason I think we'll see not just a correction but a crash in equity prices is it starts with the bond market. Everybody is short the bond market right now whether they're short from a speculative position or just short that they don't own it, so they have no insurance on their portfolio. We also know that pretty much everyone's long US equities, and that due to market cap weighting, they're long about five companies which never is a recipe for success.

Then you look at volatility and you still see people short volatility. What will happen, the way this will start unwinding is obviously bond prices will break out, people will have to cover their bond shorts, there's a shortage of liquidity as we already know, a shortage of dollar, so they'll sell stock to cover their bond shorts which will trigger a spike in volatility, which will mean they'll have to cover their vol shorts. Then of course,

the dollar is going to take off so they'll have to cover their dollar shorts and next thing they know, the whole system just crashes down. Now, what I see happening is and I'll agree with you, I do think there will be a spike of inflation not because people will realize that zero interest rates are dumb, it's because they will have flooded there because all the news will change about how equities were a bad idea and you shouldn't be buying them at these PE ratios and shame on you, and deflation will be just powering the news.

Then we'll do that because the smart money has been sitting in bonds since 2016 and has made a massive amount of money. For anyone listening that doesn't realize that, go look at the duration of 30-year bonds or 30-year zeros, there's a lot of upside to come because when interest rates get near zero, what's going to happen when the dollar spikes is it literally just going to pin interest rates low for a while. Now, it won't last real long, because the smart money is going to be unloading these bonds like crazy to get into risk assets. Hence you mentioned it perfectly, the first place you'll see it is an emerging market stock.

Now, I'm not sure I get the whole foreign bond part but what I do get is that world dollar liquidity cycle is broken. How do you get that to restart? Well, there's a couple ways it could happen. One, you can have a world war, and I don't know if you wanted me to bring that up or not, but to me, I look at it as the board game of risk and right now, the United States has this little glass piece sitting on it, which is the world's reserve currency. Sometimes when the whole system goes awry, that piece gets moved out to the middle of the board and everyone fights to get it. Do I think that's likely? No, because I think as a country, the United States has done a very good job of making sure that militarily, no one can really challenge us, and if they do, they'll regret it pretty quickly

If everybody agrees that that's not a good idea, how do we get the US consumer ultimately to spend money abroad? Well, you've got to get stock prices up. How do you do that? Well, you can go read the Swiss National Bank playbook, which is sell their currency on the open market, get dollars and then buy US equities, because everybody knows, and the Fed has known this for decades, that when US consumers feel rich, they will spend money because there's a 70% correlation between consumer spending and the stock market. How do you do it if you don't want to go to war with the United States and challenge them for the reserve stash? Well, you simply print money and buy US equities, granted it's probably not the happiest day of your life if you're a central banker, but you know what, there's not really many other choices you have.

BRENT JOHNSON: If a foreign central bank prints their own currency, they go buy the dollar and then they go buy Coca Cola or Philip Morris or GE or whatever, Facebook or whatever.

STEVEN VAN METRE: Everything, they buy all of them

BRENT JOHNSON: In that scenario, what happens to the foreign currency? What happens to the dollar and what happens to the Dow?

STEVEN VAN METRE: Well, in that example, I think I have just validated the milkshake theory, if I'm mistaken, that you have a wildly strong dollar.

BRENT JOHNSON: I guess that's the point I want to make, because listen, I don't know whether I'm going to be right or wrong. I've always tried to correct people and say it's not called the dollar milkshake fact, it's called the dollar milkshake theory. I just think that it's possible and I think that not many people think it's possible. Therefore, it's attractive to me to bet on it.

STEVEN VAN METRE: It does make sense, though. Because if I'm an exporting nation, what do I want? I want a strong dollar and a weak currency. If I'm not willing to challenge the United States over its reserves stash, how do I get it? The Swiss National Bank just wrote the whole playbook, and it does work. You print money out of thin air, and to answer your question, what do you have? You have this odd event where you have a very strong dollar, and you can have high equity. Now, that doesn't make any sense but it doesn't mean it can't happen.

BRENT JOHNSON: Well, I appreciate you bringing up the Swiss National Bank because it took me forever to try to figure out what in the hell the Swiss National Bank was doing. I think the first time I realized what they were doing was, I don't know, maybe it's 2015 or 2016, maybe even later than that, but I was like, they're supposed to be smart. They're central bankers. This is the stupidest thing I've ever heard of. You're printing your own currency to buy US equities that are overvalued? The more I thought about it and the further we've gone along, I'm like, holy cow, maybe these central bankers-- I have pretty low opinion of central bankers, but that might be the smart-- now, that might be the smartest move. It has the potential be the smartest move of any central banker I've ever seen. We will see anyway.

STEVEN VAN METRE: Well, what happens when US equities start to crash and they have to unwind those positions?

BRENT JOHNSON: It cuts both ways.

STEVEN VAN METRE: What the Swiss National Bank would need is really a bunch of other-- they're the lone wolf right now testing the waters. What they need is all the central bankers to band together and agree that this is a solution. Would they do it? It make sense because if you think about smart money positioning, we do know smart money has been very long bonds, and they count on the Fed to get their payday. In rates of zero, they're going to unload those, and they want to buy risk assets. Well, they're not going to buy them if they don't think there's some upside to them. Maybe there's some manipulation from the Fed's perspective of, hey, you got to fix this problem, and if you raise asset prices and stock prices, we'll go out and spend money. Well, okay, how do you do it? Get people to print money and buy US equities.

BRENT JOHNSON: People like Lacy and Raoul, they've been bond bulls forever. It's been just incredible call, incredible. Even a few years ago, and even me, I was saying interest rates are rising, and they stuck by it, and they were absolutely right. I think at this point with interest rates where they are, and Raoul said this recently, at this point, interest rates are a trade, it's not a long term investment. I think if the really smart money knows we're at the zero bound, it's a trade at this point, and we get that last spike in treasuries, the smart money is going to be selling and the dumb money is going to be buying and the smart money who just sold is going to have cash and they're going to have to look around and say, where am I going? I think one of the places they're going to go is big blue chip US equities

If the central banks know that all the central banks are going to do more QE and do more stimulus, in other words, another replay of what we've just done in 2009, and what we've just done over the last four or five months, why wouldn't other central banks do the same thing? Why wouldn't other central banks try to weaken their currency and so they could export more and buy equities so they could run it right back up the way the Swiss National Bank has done for the last four months? I don't know. It's extremely interesting. I think anybody who likes macro and doesn't like what's going on right now should just quit and go home and find something else to do. Because if you don't like it, now, you're never going to like it.

STEVEN VAN METRE: What you're describing is pretty much the exact replay of the Great Financial Crisis. It's exactly what happened when the smart money dumped their bonds and people, they said, how can you be bond bullish? Have you seen the interest rates? I said, look, I'm not buying it for the coupon. I'm buying it for the same reason you buy a stock because I want price appreciation. They go, huh? Yeah, it's called duration. There's a lot of money in plain old bonds. I do not plan on being a long term investor, I plan on as soon as they get around zero or so, I'm deep in it, because you're right, they're going to go buy these risk assets and emerging market assets, and bet on inflation, and it's going to make sense because central banks are going to come out and do a lot of QE.

Guess what's going to happen? It is going to appear to work until it doesn't, so there'll be a short burst of inflation, and then it's going to rotate back over to deflation and then central bankers will have no choice. That's where potentially the milkshake theory starts becoming a valid option. Now, will it be? Who knows? Is it something that as a money manager, that you have to say hey, this is a valid option and I may need to consider? Absolutely. Over time, we'll probably come up with other options that will happen but I think as a money manager, you have to be open minded to, yes, this could happen. This is it.

BRENT JOHNSON is going to call the biggest call in the world. He could be right. We don't know, could be wrong, but I absolutely have to consider that as an exporting nation, I want a weaker currency. If everything else has failed, well, I'll just buy US equities, could work.

BRENT JOHNSON: We'll see. People love to point out how often I get things wrong. Unfortunately, it happens more often than I would like it to. I'm a big boy, I can take it and I just find it all fascinating. Steve, like I've said, you've been a breath of fresh air. Coming across to you a month or so ago and watching your stuff and now having had the chance to talk to you a little bit, I love that you're in the game. I love that you're fighting and you're trying to help your clients and you're educating people and whether or not they agree with you or not, I don't care. I know that you're doing good work and I appreciate what you're doing.

I just want you to hear from me that I know it can be lonely and sometimes when you're in your office alone at night, and you're trying to figure out how this spreadsheet correlates to that price, and like, why the hell am I doing this, but you've got a kindred soul here, and I appreciate the work you're doing.

STEVEN VAN METRE: Well, I appreciate that. Lately, I said being a bond bull is being like the kid at school that just gets made fun of and people laugh at, being a dollar bull is a kid that gets beat up after school. Everybody's coming at you. It's okay, because you were in an industry of probabilities, and

managing money is just how do you get the highest return for the least amount of risk for your clients, and it's all probability based. I have to look at the fact that the probabilities are favorable that the dollar goes higher, and I'm willing to put my neck out there and my money on the line, and that's what makes it exciting. Whether people agree with my data or not, they're more than welcome to come and post comments on my YouTube about, hey, the dollar went up or down today and you were wrong. Yeah. Because I was worried about tomorrow. I'm a long term dollar bull and when it breaks over 103, maybe, Brent, you and I will have a milkshake party. Who knows?

BRENT JOHNSON: We'll do that. We'll do that. Well, Steve, this has been fantastic. Before we sign off, why don't you tell people how they can follow you and how they can find you?

STEVEN VAN METRE: Yeah, the easiest ways to find me, of course, is on my website at stevenvanmetre.com, and they're more than welcome to join the fun on Twitter. I'm @metresteven, M-E-TR-E, Steven. Then of course, you can find me on YouTube three days a week with my macro show as well.

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