This week’s Market Overtime features Santiago Capital’s Brent Johnson, an RIA whose macro framework centers around a bullish U.S. dollar thesis he calls “Milkshake Theory” – a reference to Daniel Day Lewis’s Oscar-winning performance of oil man Daniel Plainview in There Will Be Blood. Similar to how Plainview can drain his adversary’s equity by sucking up his oil from underneath his land, America will drink the world’s “milkshake” by continuing to strengthen on a relative basis as dollar-denominated debt strains lesser economies around the world.

It's a contrarian view compared to how gold bugs and bitcoiners think of the world, which is basically that U.S. monetary policy will buckle under its own weight, the world will stop buying our bonds, and the dollar will die a steady and certain death. It’s an exciting theory perhaps even more fit for blockbuster drama than milkshakes, but it’s a far cry from anything happening in reality, which is that there is practically unceasing demand for U.S. debt, the dollar remains the primary means with which to do business on Earth, and that gold and bitcoin function and trade more like commodities and risk assets.

What’s interesting is that at first blush, Johnson’s Milkshake theory does have some overlap with the typical gold bug thesis, which is that eventually a big dollar crash will happen, and that long risk assets are a great way to position ahead of that event. Where Johnson differs is that he doesn’t see other monetary systems – gold, bitcoin, a BRICS alliance – as any near-term threat, and further, any attempt by other countries to do so will likely only weaken their economies relative to the U.S. and add to dollar strength.

It all sounds pretty reasonable to me. Last year in this newsletter I wrote “Panicking Over Debt is Like Worrying About the Sun Burning Out.” On an infinite time horizon, of course the dollar will disappear, just like everything else, but for now, the U.S.’s edge over the rest of the world only keeps increasing, and did so quite notably after our monetary effort during Covid. To me, this “black hole sun” thesis, if you will, is a very simple version of the milkshake theory, which essentially says: don’t bet against the U.S.

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