Brent Johnson is CEO and Portfolio Manager at Santiago Capital in San Francisco, which he formed after a successful and lengthy career working with private clients at Credit Suisse. He now manages the Santiago Gold Fund, a hedge fund which focuses primarily on bullion and other metals-related investments.
“A big “milkshake of liquidity” has been created by the global central banks with their unprecedented monetary easing policy which entailed injecting $20 trillion in Dollars, EURO, Yen into the global economy since the financial crisis of 2008. Dollar Milkshake theory views central bank liquidity as the milkshake and when Fed’s policy transitions from easing to tightening they are exchanging a metaphoric syringe for a big straw sucking liquidity from global markets Despite all the talk about global de-dollarisation the USD currently facilitates a significant proportion of global trade. Moreover, the entire investment world currently depends on the dollar and its money flow. Put simply, global loans made in USD need to be paid back with interest in USD.
Dollar Milkshake theory explains a USD rally in terms of market dynamics of demand for dollars exceeding their supply Dollar Milkshake When the Fed, the world’s central bank by default, raises base rates and does quantitative tightening, another way for saying the central bank becomes a seller of assets, that limits the global supply of dollars. Meanwhile, foreign countries and companies “need north of a trillion USD just to make interest payments on dollar-based debt,” according to Brent Johnson. Moreover, to add to this USD liquidity drought the US Treasury is issuing dollar-denominated bonds to obtain funding for US infrastructure projects. So the Dollar Milkshake theory supports the USD bull market argument going forward.”
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