The Dollar Milkshake - Why Does it Matter...???

why does the Dollar milkshake even matter that is a question that I get more often than I can even begin to tell you and I've tried to answer that so many times and I often wonder whether I'm just a complete failure at explaining why it's important or if it's just a fact that some people don't want to hear the answer but the reason we're going to talk about that today is because this week uh over Twitter and some other social media uh interactions uh I got this question not from just one person but from more

than one person and I had a couple people ask me well what does it mean for us as investors and again I've tried to cover this before but we're going to cover it again today because it really is important and it may not be as important to you specifically as it is to someone else but it is important and I'm going to walk through why it's important to understand it so the first reason that I think it is important is because really at its core the dollar milkshake is really a way of explaining how the

monetary system works and why it works the way that it works now you guys have all heard me before talk about what it is essentially what it is is it says that in the year years ahead the dollar would get a lot stronger versus its peer currencies despite all the arguments to the contrary and that even though the dollar was going to get stronger that wouldn't necessarily mean that asset prices crashed and it wouldn't necessarily mean that the United States went into this Great Depression in fact when I very first started talking about it I

said while the dollar would get stronger despite all the objections to the contrary it would actually make us equities go higher as well and it would make gold go higher as well interest rates would rise and bonds would fall and this was kind of the message of the very first interview I ever gave on it and I think that is important if for no other reason it's important for investors now if you're not a really big investor let's say that you're a small investor but you are an investor you have an IRA you have a

401k you have a job and you're trying to prepare for your future why is this important well it's important for a couple reasons first of all I think anytime you understand how things work and understand accurately how it works rather than just some other you know uh uh an idea of how it might work when you actually understand how something works I think knowledge is power and that can help you make better decisions the other reason I think it's important is because by understanding ing the mechanics of how the system works it allows you to

come up with your own opinion and it allows you to analyze things for yourself and it allows you to kind of come to conclusions for yourself and the reason that is important is because if you don't have a fundamental base of your own or a fundamental view of your own or your own framework of how to analyze things then you are constantly going to be pinballed around and around and around based on every conversation you have with somebody smart who does have an opinion and your opinion is probably going to be based on the last

smart person you spoke to and here's the thing there's a lot of really smart people who just get things wrong and you know what I don't even necessarily think I'm a really smart person but I get things wrong all the time and is it possible that I'm right wrong about the milkshake sure it's absolutely possible and I test this all the time so far it is playing out it's not playing out as quickly as I thought it would and I got that wrong and I don't mind raising my hand and saying I got that wrong

part of the reason I don't mind saying I got something wrong is I'm not arrogant enough to think that I always get things right all the time and because I don't think I'm always going to get things right I don't mind being wrong but so far the framework is helping to understand why things are playing out the way that they are playing out but if you don't have this framework and you talk to somebody who's really smart even if they're completely wrong you're probably going to believe them and then you're going to go talk to

somebody else who's really smart and if they have a really different opinion and say oh no that first guy was wrong and you don't have your own way to check what this person is telling you against it then you're probably going to believe that person so if for no other reason I think the milkshake is important because I think it has helped people understand what is happening now whether whether it continues to happen or not I don't know we're just going to have to wait and see but I think just from a fundamental understanding point

I think it's important the other reason it's important is because like it or not the dollar underlies the entire global economy the entire Global monetary system is levered off of the dollar it started out as a dollar that was backed by gold and then that backing was removed instead of the world rejecting the dollar they doubled down on it and the reason they doubled down on it is because at about the same time the United States removed the gold backing from the dollar they struck this agreement with Saudi Arabia who agreed to price their oil

in dollars and so that ever since the whole world needed oil and energy to run their economies everybody needed dollars in order to buy it or at least they needed to hedge their EXP exposure to dollars because if it the if the if the oil price went up in dollar terms versus their own currency they needed to have some kind of a hedge so that they could still get that oil and that energy and since then the use of the dollar as the global world currency has gone vertical parabolic exponential however you want to describe

it the world uses dollars more today than they have at any time in history and so I think understanding how the dollar system works and how it reacts under certain circumstances and how the ingame regarding the dollar could play out is fundamentally important to understanding where the world is headed and how things will play out if and when a crisis ever develops so it would be kind of like being a fish and saying water doesn't matter but it does matter because you can't get away from it it is very very hard to get every to

get the dollar completely wrong and then get everything else right it's not impossible of course you know nothing is impossible there's always exceptions to the rule but in general if you get the dollar wrong your portfolio or your business especially if your business is exposed to dollars is going to be affected and so I think that's another reason why it's important the other reason it's important is perhaps it's not as important for uh Average Joe working in Missouri driving a truck and doesn't have a huge multi-million dollar Investment Portfolio but even though I like stock

talking to the average Joe in Missouri driving a truck who doesn't have a multi-million dollar portfolio sometimes I do talk to those people sometimes I do talk to people who have globally Diversified multi-million dollar investment portfolios and it's really important for them because they are operating on the global stage and they have exposures to different currencies now you as an American are extremely lucky the fact that you wake up every morning and only have to think in one currency you've taken it for granted your whole life but it is an extreme blessing everybody else all

over the world other than the United States thinks in at least two currencies and probably two or three or four currencies and so it's an incredible blessing to not have to constantly think in two or different two or three different currency so if you are somebody who you know thinks it doesn't matter what the dollar does because it's my currency anyway just consider yourself lucky but I speak to a lot of people who aren't just in the United States I have clients in Europe I have clients in the Middle East I have clients in Asia

and the dollar versus their home currency is extremely important so if sometimes I'm talking about this and you don't think it applies to you well then maybe it doesn't but it doesn't mean that it's not important to somebody else especially if you you know one probably easy way for me to explain this is if if you remember back to 2022 and you and you would listen to company earnings calls now if you remember in the first six to nine months of 2022 equities were going down I think this the NASDAQ was down 40 to 50%

you know the S&P was down 20 20 20 to 30% you know the Dow was in there as well and every time these CEOs and CFOs would be on their earnings calls they would talk about the headwinds due to the strong dollar or they would have they would be you know under pressure on their foreign currency exposure or whatever and and it's because the strong dollar was affecting um their businesses also in 2022 you know we we've talked about this many many times but in that year the bank of England had to bail out its

bond market the ECB had to bail out the Italian bond market the bank of Japan had to bail out the jgb market and China started to go in their tail spin from their real estate and Equity Market that is all the direct consequence of the dollar getting stronger so that is why the dollar is important now some people will say okay maybe a strong dollar is important but even though it's strong against other Fiat currencies it doesn't matter so if they're all falling if they're all melting ice cubes or if they're all you know skydivers

falling out of an airplane and it's just a matter of who's falling the slowest why does it really matter well this is why it matters and this is the really the key thing is that every financial crisis of the last 40 50 60 years virtually all of them now there you can somebody can probably find an exception but in general the reason it's important is every one of these crisis was either caused by or exacerbated by one fiat currency Rising dramatically versus another one or it had some element of a carry trade gone wrong and

we've talked about about carry trades before when you borrow in one currency that's not your home currency and then it rises dramatically against your currency all of a sudden you're upside down very quickly so if you don't think that a global or a regional either a national a regional or a global financial crisis doesn't affect you well then again you know say a prayer to the allmighty that you are one of the lucky individuals in the world that a financial crisis won't affect you but for for just about everybody else a financial crisis will affect

them maybe it affects their job maybe they don't get that raise they were going to get maybe they get laid off or maybe they get their work hours cut maybe their job disappears altogether maybe businesses go out of out of business and then investment portolos get affected maybe countries go into crisis and you know they have to you know in Institute new bailout laws or or or Institute you know social new new new Society lock Downs in order to prevent further you know chaos from but the bottom line is financial crisis have farreach impacts that

go just beyond um somebody's Investment Portfolio and this is why and the other thing is and some people will say well if you just own Bitcoin or if you just own gold you're going to be fine if you are a long-term holder and you have enough liquidity via another source and let's let's pretend that you don't Let's Pretend your entire portfolio is in gold and you have it that way because you know in the long term Fiat currencies lose value gold is has 5,000 years of History it can't be inflated away it can't be you

know destroyed by debt for all the reasons that everybody should own gold let's pretend you have 100% of your portfolio in Gold well if that happens and then we get into a liquidity crisis in every liquid crisis that we have had since the 1970s gold has fallen now does it recover yes does it recover faster than everything else yes does it then go on to even higher highs yes and again this is the reason everybody should own gold but during that liquidity crisis gold Falls and if you don't have any other source of income and

you don't have any other part of your portfolio that is liquid or that you can draw on to either pay your bills or live your life or operate your business then you would have to liquidate some of that 100% portfolio of gold at the lows so if you don't want to have 100% of your money in gold which I don't think you should have 100% of your money I think everybody should have gold and if you don't have gold then you should go out tomorrow and buy some but if you don't have 100% of your

portfolio in Gold then you should probably have some of it kind of set on the side for a rainy day fund or for some kind of a you know crisis hedge or for some kind of a uh to be able to use it in an emergency in a liquidity crisis and in that case you want to own the cleanest dirty shirt now this is another reason why the dollar milkshake is important because people say well why it's just the cleanest dirty shirt it's still a dirty shirt okay fair enough fiat currency is a dirty shirt

but why would you want to wear the dirtiest dirty shirt so I always kind of get a kick out of it when people say it's only a dirty it's the cleanest dirty shirt well I got to tell you if I have to choose between dirty shirts I'm picking the cleanest dirty shirt I don't know why anybody would want to wear the dirtiest dirty shirt and in those rare occasions where we get these liquidity crisis not only that dirty shirt all of a sudden becomes pristine and you can use that to to to to help out

in in in many many ways so these are all kind of reasons why the dollar milkshake is important now is it more important to other people to some people than others absolutely in many ways it's more important for people outside the United States than inside the United States I've talked to many people outside the United States who have done very well over the last five six seven years by keeping their money in dollars or at least their cash needs in US Dollars versus their home currencies and so that is you know if you've never spoken

to somebody from Argentina or Bolivia or even Australia or turkey or South Africa or India you talk to them and they they will tell you that the dollar is a strong currency you might not think it is because you live in the US and you don't understand what a weak currency really is but again for people outside the United States I I think in many ways it's even more important to them okay so what does this mean for the average guy what how can you prepare for this well I think there's a couple things number

one I think the whole milkshake theory for one has tried to explain that even though this is probably all going to end really badly the US on a relative place or a relative basis is a pretty good place to be so if you're trying to decide where to allocate your portfolio even if it's just a small 401K you don't have to load up on emerging market stocks you know you don't have to put 100% of your portfolio in Gold it's it's okay to have some of these things but I think it's important because I think

a lot of times the alternative media the alternative investing space will say you have to get out of the United States it's an Empire ready to crumble the dollar is going to collapse you have to get out of it you're better off if you buy these Emerging Market companies who have come from commodity producing countries and you don't want to be exposed to all the debt in the United States and listen it's not that these aren't important points to consider but all you have to do is look at the chart to see that over the

last five or six years the US has wildly outperformed the rest of the world that's just a fact the money has flowed here just as the milkshake predicted and I think that that will continue and I think in the endgame it'll play out even more than it has played out already now will there be points along the way where that doesn't happen will there be points in time where money leaves the US for short periods of time or will the US Stock Market fall from you know and have the have these dramatic draw Downs on

away absolutely it will this is not going to be easy this is the other thing why it's important it's important to understand that we are going to have some very challenging days ahead of us and I think it's important to prepare for that and I think it's important to prepare for it ahead of time and so that when you get into it you're a little bit ready for it rather than trying to figure it all out in the heat of the battle and so hopefully my big hope is that you know doing this podcast and

talking to people on Twitter and going on podcast has kind of helped people get a frame of reference um to use uh and a framework to use as we go through this time this time ahead now if going back to the very first point I made what do what does it mean for the average investor if I were to keep it really simple it would mean that you should be Diversified you should have some cash and that cash should be in dollars you should have some gold and that gold should be in physical form probably

not just an ETF you should have some exposure to the equity market now I don't whether that's through your own business whether it's through some kind of private Equity that that you're involved in or maybe it's just your 401 part of your 401k or your your your your investment fund I don't think you should just be sitting 100% cash you should have some exposure to to equities now when you make that exposure to equities I think it should be to us equities I don't think it's worth going overseas and buying you know risky companies and

some of these riskier jurisdictions especially with what's coming ahead and then I think everybody should also have um you know probably some form of real estate and whether you know whether whether you have rental properties whether you own a home whether maybe you own some Farmland but the point is if you have those four Investments you're kind of ready for anything and you will survive just about anything to come now it doesn't mean it's going to be easy again I think it's gonna be very challenging but I think those are the types of things that

you can think about um and I hopefully the whole milkshake theory has helped you think through why those things are important now that was a little bit of a rant there I hope I hope I hope that answered some of the people's questions um that that reached out to me uh over social media this week what I thought we would do now is I'm going to um go through some charts like we what we did last week um and uh let me just figure out how I do this here hold on I'm gonna add this

to the stage there we go there we go um I think uh because you know la la this last last week I was in St Barts as you know um I I was able to do short uh thing telling you where I thought things were headed I thought you know if we just go this week uh over um some of that same stuff it it might be helpful oh you know this first chart here by the way this is just you know I had another guy on social media say the problem with the dollar milkshake

is there's no way that you can measure whether or not it's true or not because it's just about the dollar well first of all the dollar Milkshake the dollar is just the Catalyst nobody should just be sitting in the dollar milkshake does not say you should just sit in dollars and do nothing else it says you should be invested but the dollar is the Catalyst for a number of different investment asset classes and the dollar milkshake said in the years ahead bonds would fall you can see that this blue line and this Orange Line This

Is Us bonds one the 10 year fell 10% over that time period and the 30-y year fell 20% so it said interest rates would rise that's this white and blue line and it said bond prices would fall that's these two lines so far that's measurable and that's accurate it also said the dollar would rise over that time that's the orange line it's up 10 per. now some people say well that's not very much but 10% for a currency is quite a bit actually and at one point it was up 20% and it has not caused

the currency crisis I thought we would have already had a currency crisis we haven't um so I'm happy to I'm happy to admit that I was wrong there um but think about everything that has been thrown at the dollar over this time period all the bailouts all the QE all the guarantees all the all the job owning about the dollar going lower and yet the dollar is up despite everything that's been thrown at it not only that but look at equities you Equity the purple is the equities until just a month ago equities and gold

had done equally well um now in the last month equities have had a hard pullback and gold has continued higher so gold has been the ultimate winner over this but remember the dollar mils like said in the year ahead rates would rise they did the dollar would rise it did US equities would rise it did and gold would rise it did these are all measurable so I'm not when when people tell me there's no way to measure whether or not the theory is working I I just look at this chart but let's go let's let's

bring it now to where we're at year-to date um so last week we talked about uh the S&P 500 let me or the down let me make sure hold on I want to look here and make sure that this is this is showing up correctly for you guys oh yeah okay so this is the Dow this is the Dow Jones um you know you know I was saying that last week was a little bit volatile and I thought we would have another volatile volatile week this week well not only did we have a volatile week

but the Dow broke below the two the 20 the 200 day moving average if you remember last week I said it was sitting right on the 200 day moving average it actually broke below that you can see the relative strength got down here into the 20s kind of the high 20s and stochastics felt all the way to the floor now I will say in general if this if the relative strength had gotten a little bit weaker this is where you if you're gonna if if if you're trying to find a bottom and you're trying to

put money to work this is where you would want the stochastics to be ideally you would want the relative strength to be a little bit lower but you're getting into that neighborhood you would also like this to be sitting near support so if we would have had the relative strength all the way down here if we would have had the stastics all the way down here and it was sitting at the 200 day then maybe last week I would have said that's a buying opportunity but because the stochastics had not crashed yet because RSI was

still relatively high and because we were um you know because we had not gotten clear to these levels and and sentiment had not completely broken down yet I said you know I thought it could still go lower and that's what we've seen um now if we look at the S and oh here's the other thing that's interesting on this chart so now you're seeing the 50-day moving average is now just starting to cross the 100 day moving average that will often be seen as a breakdown in Trend and that will often when that happens you

will often then see further weakness so we're just kind of right at it right now we you know maybe we'll get a bounce I don't know but I'm just saying it's pretty interesting that that right there is just starting to cross if we look at the S&P 500 we see something similar you see the 50-day moving average is just now sitting at the 100 day the S&P also broke below the 200 day moving average the RSI got weak but not extremely weak and again but the stochastics again are kind of on the floor so the

stochastics are where we would want it to be if we were putting money to work and by the way we got a really strong bounce on Friday so it's going to be interesting to see how this week goes I think maybe we get a little bit of a bounce into the FED meeting but uh I I I don't think all the weakness is over yet I don't think that I don't listen maybe we'll find out that this was the bottom but I I don't think so now here's the NASDAQ um you know it also broke

below the 200 day it had broken below it last week and then it came back up and retested it and now it fell even lower um and so right you can see here also that the 50-day is almost down to the 100 day not quite there but but but it's getting close and it'll probably get there this week the Russell 2000 um it broke way below the 200 day moving average uh a week ago and then it showed further weakness this week week and again we saw the same thing the stochastics are on the floor

relative strength is weak but it hasn't totally crashed and then it had a big upd on Friday but here's what I the reason I put the Russell 2000 up here is if you look back it was about three weeks ago when the 50-day moving average of the Russell broke below the 100 day moving average so this pink line went below the green line now remember I showed that Here Pink line is at the green line on the Dow pink line line is at the green line on the S&P pink line is just getting to the

green line on the NASDAQ and I said typically or what can happen sometimes is when that breaks through there then that indicates more downside well let's look at that on the on the Russell because this happened on the Russell three weeks ago it happened right there kind of the third week of of February and then what happened look just a few days later boom the huge draw down and it's just been nothing but down since then so I'm not saying that that's necessarily going to happen here and here and here I'm just saying it's very

interesting that we're right you know markets are already weak and now we're kind of right at these levels would not surprise me at all if that breaks below and we see further downside here sometime between now and the end of the month um oh the other thing I wanted to talk about we touched on this last week is the other kind of one of the reasons um that we were not thinking the bottom was in yet was because the the vix was trending up upwards and it had been trending upwards for almost a month and

in the past you know this past year whenever we would see spikes it would it would spike really quickly and then come back down Spike and come back down and this was just kind of a slow draw Higher and Higher and Higher and Higher and we had a really kind of a high on Tuesday it almost got to 30 and then it pulled back into the end of the week and it was a pretty dramatic down move on on um on Friday and so you know typically if you if if you're buying puts or if

you're buying Hedges it's tough to buy them up here because they're so expensive but when the volatility comes down the hedges are a little bit more expensive so you know as this comes down if you haven't you know first of all it's really I think I said last week too you don't it's really tough to be buying puts when these are already down here when you've already had the five to 10% draw down you know you don't want to just be starting to buy puts at this level especially when the when the vix is already

at 30 but if the vix is now coming back down kind of into the low 20s or maybe it even comes into the teenss this week that might be and if we get a little balance in equities that might be an opportunity for people who have not yet had Hedges on uh to put them on we have dur during this runup and during these rundown we've been rolling our puts down and so we don't have as quite as much exposure to puts now as as we did before but we still do have some uh because

we're expecting more downside in the um in in the the weeks to come the other thing I wanted to show you is you know I saw God where I think it was on Zero Hedge but it might have been on Twitter I can't remember somebody posted a chart of how much um the put volume was just off the charts meaning everybody was buying puts and you can see here it's kind of the highest volume in history and that's you know I think I think that was being put out as an indicator well this this has

to be the bottom because everybody's all in on puts and I I I had said that I was surprised about that because last week when I looked at the put call ratio it it was very tame and in fact it didn't indicate this at all well the reason and I didn't have my Bloomberg at the time but when I came back and I looked at it well the reason is because everybody's been trying to buy the dip with calls so this is puts everybody betting on it going lower but there's an equal number of people

buying the dip buying calls expecting there to be so so this shows the call volume is at an all-time high and so when you look at the put call ratio it's actually at a pretty pretty uh you know non-extreme L level but what I wanted to show you is when we talked last week this is where we were uh I think it was uh on the seventh or eighth that we talked and it was very benign now middle of the week it did Spike but then with the with the with the rally on Friday it

came back down so the the bottom line is the the put call volume is not extreme it got a little bit extreme for like one day uh but the put it's not like everybody's buying puts and nobody's buying call and everybody's extremely uh Beed up right now so I thought that was kind of interesting now we're gonna finish off with gold and silver gold hit $3,000 this last week and as I showed earlier um you know gold uh is the best performing asset since I first started talking about the milkshake back in 2018 you guys

always like when I show the the the equity POS or the the the cot positioning versus gold so the black line here is gold and the pink line is is is the positioning so this is the short positioning so typically as you know gold goes higher then the short positioning gets bigger what's pretty interesting is over the last month as gold went higher you started to see some short covering uh by the commercials now if this continues that's going to be a sign of man we we could really jump higher but you got to be

careful because what you have to remember is this pink line is a week delayed where the black line is live and so this this this point right here is as of it came out on Friday but it's as of Tuesday and this big this the gold spiked almost $100 um in the last three days so from let's see where were we at intraday oh this isn't showing the let me this isn't going to show it because it's a it's it's a weekly chart um but as of as of Tuesday I think gold was around 2920

or something like that and over the next three days it went to $3,000 so it went all it went up almost $100 in the three days and I would expect that as gold rallied three $100 that this short positioning was getting bigger while that was happening so I'm actually really interested to see where this is next week to see whether they covered into that Rally or whether they added shorts back so that's going to be pretty interesting now finally we get to Silver silver this is what I would have expected to see and what I

would expect we see next week as the price of silver got back up to where it was last year so um you know I think silver hit 34 bucks last fall uh hasn't really done anything for the last six months but now it's gotten back kind of back up to where it was not quite to 34 but pretty close but as that has happened you've seen the short position start to get bigger again and again the big you know this isn't as up Tod date uh since the big move so it'll be really interesting to

see where these are at next week um anyway um that's just kind of uh you know where we're at this week hope that makes sense for you guys hope uh you know going over these charts every now and then and kind of just telling you the things I'm looking at as helpful and I hope my explanation of why the dollar is important why the dollar milkshake is important helps to answer some of your questions uh as always feel free to you know shoot me a DM or an email or you know ask me on Twitter

or even comment in the section on the video uh if anything you want me to cover and if I have the ability to do so I will so anyway this has gone on uh more than 30 minutes now so I'm going to let you guys uh get back to your weekend it's going to be interesting to see what happens in in in the weeks ahead here but uh whatever it is it's not going to be boring okay guys take care bye