MacroVoices #537 Brent Johnson: There’s No Turning Back

Key Concepts

• Fourth Turning: A socio-economic framework suggesting society is in a period of major upheaval, institutional decay, and transition, often leading to extreme political shifts and the potential rise of an "empire" model.
• The Band: A concept (inspired by the show Land Man) describing the optimal price range for commodities (like oil) and the US Dollar; exceeding these bounds creates either inflationary or deflationary shocks.
• Dual Carry Trade: The structural disadvantage faced by non-US nations, which must manage both local currency carry trades and global US Dollar-denominated debt, making them vulnerable to US monetary policy.
• Deglobalization: The shift from a multilateral "rules-based order" to a more nationalistic, bilateral, and fragmented global trade environment.
• Stable Coins: Digital assets pegged to the US Dollar, which the hosts argue are reinforcing US monetary hegemony by creating global demand for the dollar outside of traditional banking channels.
• MRO (Maintenance, Repair, and Overhaul): A critical supply chain sector in the aviation industry, now identified as a potential point of systemic failure due to geopolitical tensions.

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1. The Iran Conflict and Geopolitical Outlook

Brent Johnson (Santiago Capital) argues that while the kinetic conflict with Iran is "winding down for now," it is far from a permanent resolution.

• The Deal: The Memorandum of Understanding (MOU) is viewed as a temporary "pause" rather than a victory. Key points of contention include the $300 billion funding structure (which the US denies paying directly) and the status of nuclear material, which remains on-site despite Israeli demands for removal.
• Strategic Realities: Johnson suggests the US is using the conflict to test the capabilities of adversaries (Iran, Russia, China) and to exert pressure on the global economy to secure favorable long-term energy contracts.
• Strait of Hormuz: Despite initial claims of reopening, the situation remains volatile. Iran’s insistence on charging "user fees" ($1/barrel) suggests a permanent shift in how the Strait will be managed, signaling a move away from the pre-war status quo.

2. The US Dollar and Global Hegemony

Johnson maintains that "de-dollarization" is largely a myth.

• The "Milkshake" Theory: The US Dollar remains the preferred global currency due to its unmatched utility. Even as central banks buy gold, they eventually sell it to acquire dollars when they need to operate on the global stage.
• Weaponization: The US can "paint it black" by using the dollar as a weapon, creating liquidity crises for adversaries. Raising interest rates acts as an "early withdrawal penalty" on foreign reserves held in US Treasuries, forcing other nations to sell assets at a loss.
• Empire vs. Republic: Johnson posits that the US is transitioning from a Republic to an Empire. He argues that the US will use every available asset to maintain its position, and that the current global instability is a return to historical norms (dictatorships/empires) rather than an anomaly.

3. Market Opportunities and Investment Strategy

• Agriculture: Patrick Szna and Johnson highlight a "delayed agricultural tightening" theme. Disruptions during the planting season (due to shipping issues) are expected to cause a food supply shock in Q4 2026 and Q1 2027.
• National Defense: Increased global nationalism and the need for countries to rearm make the defense sector a primary long-term investment opportunity.
• Trade of the Week: To capitalize on the agricultural thesis, Szna proposes a January 2027 $27/$30 Bull Call Spread on the Invesco DB Agriculture Fund (DBA). This provides defined-risk exposure to the expected food price inflation.

4. Market Analysis and Technical Levels

• Crude Oil: After a 20% collapse to the $73 level, Eric Townsend expects a retracement to fill gaps near $85–$100. He notes that while the "doomsday" $200/barrel prediction is off the table due to Chinese strategic reserves, the market is currently over-optimistic about the peace deal.
• Equities: The market is currently in a "celebratory" phase. However, concerns remain regarding the upcoming unlocking of restricted shares in major IPOs like SpaceX, which could create significant selling pressure.
• Gold: Currently oversold, gold is expected to remain in a consolidation phase until there is a clearer pivot in interest rate and inflation expectations.

Synthesis and Conclusion

The consensus of the discussion is that the "peace" in the Middle East is a fragile, temporary measure designed to prevent an immediate global economic collapse. The underlying trend remains one of deglobalization and increased nationalism. Investors are advised to look past the immediate market "all-clear" signals and prepare for second-order effects, specifically in the food supply chain and the ongoing structural strength of the US Dollar. The transition toward an "Empire" model suggests that volatility will remain high, and capital allocation should prioritize hard assets and sectors critical to national security.