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okay so recently i've talked about how the us dollar is losing value as the fed is just printing so much of it but i said during that video that every argument has two sides to it that's right even with vast sums of money printing going on there's an interesting argument which makes the point that the us dollar is actually going to gain strength so the us dollar will become more valuable not less so i asked you in the last video if you wanted to hear that side of the argument too and many of you commented saying yes so i read your comments and in this video i'm gonna present to you brent johnson's dollar milkshake theory so basically i've scoured the internet i've edited together these clips where brent puts forward his argument for why he believes that the dollar will gain strength and when he starts getting a bit technical as he does at certain points i'm going to jump in at the end of these clips to break it all down with a few simple examples that hopefully everyone will be able to understand and then at the very end i'll share my conclusion and really share my thoughts on whether i agree with this theory or not if you appreciate the time and effort it took to put this video together i'd really appreciate you smashing the like button as it helps with the youtube algorithm but anyway let's get into it and let's kick things off with why brent believes the dollar will gain in value i think that we're going to go through the biggest short squeeze in history and what i mean by that is i think the u.s dollar is going to get squeezed much much higher and it's going to get squeezed much much higher because despite the fact that many people don't like it would prefer to have an alternative that they just don't and the rest of the world will the us and the rest of the world has taken out an incredible amount of us dollar debt that debt either gets paid off serviced or defaulted on and the only way that that isn't extremely dollar positive is if it gets paid off i don't see how it can get paid off there's just not enough dollars to go around but the demand just to continue to service it continues to put a bid under the dollar and if it gets defaulted on defaults while it may decrease demand it actually destroys money and what i mean by that is in a debt-based monetary system where money gets loaned into existence a default actually makes money disappear and it starts a chain reaction all the way back to the collateral which was the original basis of which everything was loaned into existence so even if you have defaults where demand falls supply falls even faster so whether people continue using the dollar and are able to service it i think that puts a bid under it or if they start defaulting on it because they can't pay it or don't want to pay it we get a supply shock and the dollar goes higher i can't figure out a scenario actually i can figure out a couple potential scenarios where it would go lower but i just think those are very low level probabilities so when it comes to if something is going to rise or fall in value we always come back to the most simple concept of supply and demand so i think we're all kind of familiar with the basic idea that if we increase the supply of something it should push the price down assuming all else is equal and if we increase the demand of something it should push the price up so when we talk about the fed printing many dollars this obviously increases the supply and that could cause the value of each individual dollar to fall however we also have to consider what will happen with the demand side of things and brent is making the point that many countries around the world have essentially taken out these loans in u.s dollars and that means that they need to make interest payments each and every year in us dollars so let's say you borrowed one thousand dollars from the bank at the end of the year they might come knocking and demand thirty dollars of interest from you now if you have thirty dollars in your possession no problem you can just go and get it and pay them back but what happens if you don't hold any dollars well you'd have to go out and buy those dollars from the markets maybe you'd have to sell some stocks and bonds some of your possessions whatever it takes you have to go out and buy us dollars by essentially selling what you currently have and that right there buying those us dollars is going to increase the demand and potentially increase the price now of course you going out and buying 30 isn't gonna have much effect on the value of the dollar but let's imagine for a second that it's not just you and it's not just thirty dollars instead we're talking about countries central banks and trillions of dollars if all of these countries have to go out and really buy many billions of dollars in order to pay the interest on the loans that they've taken out we can begin to see how this could increase the demand for dollars and as a result it could then feed down to the value of the dollar in a very positive way now you might still be thinking just because demand for dollars might rise it doesn't really matter because if the fed keeps printing it eventually the supply is going to increase so much that it overpowers the rising demand so let's jump back in and again this gets a bit technical but don't worry i'll break it down for you in simple terms after and now everybody's printing the whole world is printing we're printing but this and then people will say to me well isn't this going to kill the dollar well if we were again if we were acting in a vacuum it absolutely would but this is also very similar to 2009 when we announced qe1 and 2 and 3 back in you know 10 years ago a number of institutions and people around the world thought that the united states dollar would fall as a result of that if you think the dollar is going to fall one of the smart things to do is you take debt out in that currency and as it gets inflated away you pay it back at a lower price later on well the rest of the world borrowed 13 trillion dollars in us dollars um i think it was around four or five trillion in 2008 and now it's another 10 trillion since then 9 or 10 trillion since then but the problem is is that the dollar didn't get weaker over that time the dollar actually got stronger over that time and so now we're back in the same situation we owe a lot of debt but the rest of the world owes 13 trillion of a currency that they can't print so now you still have this high level of debts that need to be paid off but the supply of dollars is shrinking it's deflation right um and so we're going through a massive deleveraging event right now and so now all the central banks of the world again are coming out and printing like crazy and listen the fed is printing like a madman i'm not denying it but the ecb is too the bank of canada is two china is two australia is two brazil is two everybody so now we're back to this coordinated effect again right everybody's providing liquidity i just happen to believe that it doesn't really matter where that liquidity gets injected whoever has the straw gets to suck up that liquidity now on a relative basis despite the fact that we've cut rates all the way down they're still basically the highest in the world you know other than maybe china and again i don't think people are racing to put money into china right now i don't think the you know the russian ruble is going to become the world reserve currency anytime soon right so while our rates are certainly not as high as they were two years ago on a relative basis they still look uh pretty good but all those other factors are still attractive for capital to come into the united states and i think the fact that we are still the world reserve currency combined with those other factors will draw capital in the united states over the next couple years and i think drawing in that capital will keep the dollar stronger than other fiat currencies despite that we're printing so much of it okay so let's break that down as brent makes a few points there first off he acknowledges that the fed is printing money like crazy but he also highlights that just about all central banks globally are really doing the same thing so the us dollar isn't actually that unique in the aspect of the fact that it's being printed like crazy the next point that brent makes is about who is going to suck up all of the liquidity okay so what exactly does that mean well if countries are printing large amounts of their currencies the question is where does this money go who ends up with most of the money if we imagine a big game of monopoly for example and someone suddenly introduces new money to the game well who's going to end up holding most of that new money and that's kind of like all of the central banks printing money globally where's that money going to eventually end up well this is where brent makes the case the most of the money in his opinion is headed towards the united states he discusses high interest rates the fact that the us dollar is the world's reserve currency and at other times has referenced the strength of the u.s stock market all of these are key factors for why he believes the us is going to suck up most of this new money and this will actually make the dollar even stronger by the way if you're wondering whether theory has such a unique name the us dollar milkshake theory it comes from a film called there will be blood and it comes back to this concept that because the us is so appealing in the eyes of foreign investors the us will eventually suck up most of the new money being printed now brent has also gone on other times to discuss that he believes this will have a tremendously positive effect on the u.s stock market he believes that as the us dollar gains in strength and other currencies around the world lose their relative strength some countries may have a major currency crisis so imagine this for a second imagine you live in a country with relatively high inflation and a stagnant economy now you could keep your money in your local currency but with high inflation you're just guaranteed to lose money with each passing year so that doesn't look like the best bet you could invest your money into your country's stock market but maybe you're not that confident in the stock market and also you probably can't handle the crazy volatility that could come with it or you could invest your money into the u.s stock market now sure of course the u.s stock market may crash like any stock market but it's probably going to crash less than your own country's stock market and the us stock market has generally been on a very consistent upward trend over the past hundred years so you also have a good chance of actually making some money in brent's opinion this increased demand for us investments from foreign investors will be positive for the us dollar and as a result he is one of the few investors around who believes that the u.s dollar is going to increase at the same time as the stock market now most other analysts they actually believe that either the dollar will fall causing the stock market to rise in dollar terms or the stock market may fall on the back of the dollar gaining in value most analysts believe that we could see potentially both going down or one of them going up there's very few analysts out there that actually think they're both going to increase but that's what brent believes with his dollar milkshake theory okay so the theory sounds great but let's be honest here there are a lot of theories out there and they often point to opposite arguments while both somehow kind of sound incorrect so if you're feeling confused at this point don't worry i'm right there with you like i said in the previous video i was happy to present both sides of the argument as i think it provides you with a more balanced point of view but don't expect to hear two sides of an argument and then feel more confident that one of them is correct as is always the case in life if you consider the other side too you might end up slightly more confused during the process but once you do process everything you'll end up with a fairer more balanced perspective at the end and that is what's most important and also don't worry as the conclusion at the end will tie things up quite nicely and hopefully leave you less confused than you might be at this point so let's carry on and brent will share his thoughts on what would have to go wrong for his theory to not be correct but most importantly he's going to talk about what he recommends that we as investors should do the main problem is that i see this supply demand imbalance between the dollars that exist and the dollars that are needed the common challenge to my thesis is that the fed will provide however many dollars are needed to the rest of the world and the united states economy if they end up doing that then i will be wrong and i will be wrong on an absolute basis however i don't think that that's going to happen but we'll have to just wait and see but that's one way i could just be completely and absolutely wrong the other way i could be wrong is i could just be early and maybe the dollar sells off over the next six to 12 months because of a number of things that the fed is able to do in the short term but that they are not able to solve in the long term and that we end up right back where we are or we end up right back where we were in march you know next march or next july or something like that and in that case i will have been early and the thesis won't have played out yet but i still have the opportunity to be right in the future so i could be wrong in the short term but still be right in the long term first of all i'll say that absolutely everybody should own gold it should be the bedrock of everybody's portfolio i've said this for years i continue to believe this my point is not that you shouldn't own gold my point is that when it comes down to it people need to have dollars they don't need to have gold they may want to have gold and i may want to have gold but to operate on the world stage you need dollars and when they had to choose between dollars and gold in march they chose dollars now after we got through that liquidity squeeze gold came back faster than anything else and the miners came back faster than anything else but when liquidity needs come you know dollars are favored and and i'm not convinced that the next time that we need dollars which i'm sure is coming that the same thing won't happen again now maybe they will maybe it won't maybe people are going to continue to buy gold and silver and especially in foreign currencies you know not u.s dollar terms if i was a canadian dollar investor or an australian dollar investor a yen investor i would have no qualms about gold right now and again if you have a long-term time horizon and you don't mind what gold does on a monthly basis or a weekly basis then there's no reason not to own gold now okay so let's break it down brent highlights that the main way he could be wrong is if the feds simply print enough dollars for the rest of the world if they do this then it doesn't really matter the country's worldwide need to buy dollars to pay off their debts because however much the demand for dollars may rise the supply will simply rise alongside with it now personally i think there's a good argument that can be made that the us have an incentive to provide dollars to other countries if it means that those countries won't default on the debts that they owe to the us but to tell you the truth like i always say in these videos i'm just a regular guy researching these topics to really try to get my own head around things and then i'm just sharing my research with you even though i'm fascinated with economics and finance i am not a financial advisor hence this isn't financial advice and i'm really really no economist so i think it would be incredibly naive and maybe even slightly arrogant of me to think that i know better than brent johnson a far more successful investor and smarter investor than myself instead what i'll highlight is something that he believes which really resonates with me he believes that the world's financial system is fundamentally set up in a way which means that it doesn't have a reverse gear he believes the central banks have simply been kicking the can down the road so when a recession or a depression comes the only option they really have is to turn on the printing machine and print currency and if we believe this to be true which i personally do then we start to ask ourselves which investments look good with this in mind well the main investment that comes to mind for myself and for brent is of course gold brent believes that gold could actually see significant growth potentially reaching as high as 5 000 and maybe even higher as his theory plays out now it also adds the gold may sell off at various times as investors need dollars to be able to play in the international markets so they may be forced to sell some of their gold for dollars at certain times but as he adds if you're a long-term investor which i don't know about you but i personally am then we shouldn't really care what happens on a daily weekly or even monthly basis it's more about the long-term perspective in fact as we play this last clip you'll hear how brent's theory very interestingly concludes and then the dollar as the dollar goes back to its all-time highs the the world financial system just cannot survive on a strong dollar it just doesn't function so something is going to have to be done and whether it's an overnight revaluation another coordinated plaza accord type thing it's going to have to be revalued and when the when the dollar starts going down and when they start doing things to weaken it that's when the u.s assets will lose value that's when the stock market will crash that's when gold's really going to shine because the final showdown that everybody's waiting for is definitely going to happen and it's just like in highlanders there can only be one at the end of the day gold will beat the dollar it's the one asset that can't be inflated away it's the one asset that can't be destroyed into deflationary collapse so everybody should own gold but it doesn't mean it's going to happen tomorrow what a great quote at the end of the day gold will beat the dollar so interestingly even though brent believes the dollar and the stock market will gain strength in the short term he also believes that ultimately both are actually headed for a crash and he adds the gold will beat the dollar now he adds the gold is the one asset that can't be inflated away and to this point i would actually mention bitcoin and it's permanently fixed supply of 21 million i think bitcoin has a place in every investor's portfolio albeit to be fair quite a small place don't get me wrong because it is much newer and much more volatile than gold but if you simply look at the data from a purely mathematical standpoint allocating between one and five percent of a portfolio to bitcoin has been shown time and again to increase the risk adjusted return because it's not highly correlated with any other investment type out there it goes back to some of the tenants of investing such as modern portfolio theory so what are the key takeaway points in brent's opinion in the short term the u.s dollar is going to gain strength over other national currencies he believes its role as the world's reserve currency is strong and it isn't going anywhere anytime soon again like i said in the last video i'm personally not so confident this is right but at the same time he's much smarter than i am and interestingly our long-term views are very well aligned brent believes that the dollar strength is mostly in comparison to other national currencies and at the end of the day they are all somewhat being inflated away particularly with so much money printing going on and it likely to not be stopping anytime soon so in the long term he believes even the dollar will lose strength in comparison with the likes of gold okay so this is a really interesting theory and i'm keen to hear your thoughts so let me know in the comments what you think about this theory whether you agree or whether you disagree and let me know if you have any suggestions for future videos in the meantime check out this video up here for more investing and finance content and of course just thank you for watching