Expect A Market Correction By September | Brent Johnson

**Brent Johnson** (0:00)
Listen, I think that we are going to see a meaningful correction by the end of September. Now, I'm not predicting a 2008 style financial crisis. I'm not saying we're going back into the Great Depression. I'm just saying markets don't tend to move in a straight line, and everything is pretty stretched, and I would be surprised if we'd get through the end of the quarter without having some volatility associated with a resetting of expectations.

**Adam Taggart** (0:34)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. The dollar has weakened considerably so far this year. It admits the US administration's hardball trade tactics. Critics claim that foreigners are ramping up their de-dollarization efforts, they're buying less US debt, and that the days of the dollar as the dominant world reserve currency are ending. Well, how much truth, if any, underlies this? For answers, we're fortunate to welcome back to the program Brent Johnson, CEO and Portfolio Manager at Santiago Capital, developer of the Dollar Milkshake Theory and publisher of the Macro Alchemist. Brent, it's great to see you again. Thanks so much for joining us today.

**Brent Johnson** (1:13)
Thanks for having me. Always fun to talk to you.

**Adam Taggart** (1:16)
Always fun to talk with you, Brent, and a lot going on, especially in your area of expertise. So if you don't mind, let's just roll up our sleeves and jump right into it. Couple of big topics here for you, but just to get out of the way, why don't we just start with the dollar? It has weakened substantially this year, showed a little bit of life recently, but now starting to potentially weaken again. From your perch, studying the dollar and all things, dollar milkshake, what's your outlook on the dollar right now?

**Brent Johnson** (1:52)
Well, I think it's pretty oversold right now, and perhaps unnecessarily so.
Now, I'll couch this and say, it doesn't mean that the dollar can't go lower, and it doesn't mean that it has to rocket higher. But what I would say is the table is set for a rally that few expect. And it's these unexpected dollar rallies that tend to cause problems in global financial markets. The dollar falling is typically not a huge issue for global markets because the dollar falling kind of perpetuates the status quo and perpetuates the system as it is. You know, the dollar falling indicates that there's plenty of global liquidity. It indicates that credit is being extended and that there is probably at least some level of expansion going on. And the reason is because the dollar underlies the entire global economy. So it's when the dollar starts to rise and credit starts to contract rather than expand, that problems tend to happen. You know, as a manager of assets, if the dollar is going down, in general, that typically means asset prices are rising. Not always, but in general, that's what that means. And so as someone who oversees assets, the dollar falling is not something that worries me significantly. We're prepared for the dollar to go lower. What we hedge against and what we're always on the lookout for is these unexpected moves higher in the dollar. And I think that again, the table is set for that. Whether it happens or not, we'll see. I am expecting some volatility over the next couple of months and perhaps significant volatility over the next couple of months. And again, that typically coincides with a rising dollar, not a falling dollar.

**Adam Taggart** (3:43)
Okay. And is that volatility expectation more due technically to your fact that you just think it's very oversold here and ready for a bounce, or are there more sort of structural, fundamental, geopolitical factors that you're expecting to create that volatility?

**Brent Johnson** (3:58)
Well, I think it's all of the above, all of the above. And, you know, I want to make sure I don't come across as totally hyperbolic here. All I'm saying is the table is set for some great volatility. And if that great volatility does show up, asset prices do not reflect people being prepared for it.
You know, and my job is to always be prepared for these unexpected bursts of volatility. And the signals that I look at are telling me now that, again, the table is set for one. And there's a number of different catalysts. I could probably name five different potential catalysts that could cause some unexpected volatility. And when everybody's on the same side of the boat and everybody's positioned the same and everybody is greedy and nobody is fearful, that's typically when these things happen. And for whatever reason, Adam, I don't know why this is. Historically, these things always tend to happen in the fall.