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? STEVEN VAN METRE: Yes. 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 they have. 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, when those 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. BRENT JOHNSON: Now, we can find you on Real Vision as well. STEVEN
VAN METRE: That, it's amazing to look back. The Steve, when he first signed up for Real
Vision could have never imagined that he would get to be seen on the same stage with his
peers to talk about his views. I think it's just a testament of what Real Vision offers
as a service and no matter where you're at, whether you're just new to macro or you've
been in 30 years, that there's a lot to learn and a lot of different opinions. I think this
is going to be a real fun time here in the next couple months. BRENT JOHNSON: Yeah, you're
here now and it's the Super Bowl. Let's enjoy it. Great talking to you. JUSTINE UNDERHILL:
If you're ready to go beyond the Interview, make sure you visit realvision.com where
you can try Real Vision Plus for 30 days for just $1. We'll see you next time right here
on Real Vision.
