Insane Moves In Bonds And The Dollar...What Does It Mean? (w/Brent Johnson)

Brent Johnson argues that nominal growth helps explain bond-market pressure: he cites France’s roughly 4.7% nominal GDP growth, much of it from inflation, and a roughly 100-basis-point gap with Germany. Other speakers say rates should be judged against nominal growth and that policies or tokenization could support faster GDP growth, though one says a major liquidity event in the next six to nine months is not their base case.

The guest describes oil as both an economy-wide input cost and collateral for credit: very high prices such as $120, $150, or $200 could be highly inflationary, while prices that fall too low could constrain collateral and new credit. The speakers add that if oil reaches $120 or $140 amid a weak labor market and widening crack spreads, demand destruction could turn an initial inflationary pulse into disinflation; a strong labor market could instead sustain consumer-price acceleration.

Johnson says higher yields can make the United States relatively attractive because Europe’s outlook is weak and Japan has debt problems, while continued employment and automatic 401(k) contributions can support U.S. equity demand. He says those forces can keep asset prices rising for a time, though they could eventually reach a breaking point.

Johnson says gold’s role depends on the timeframe: foreign demand, including from India and China, and central-bank concern about counterparty risk after Russia’s reserves were frozen have supported its appeal, but a dollar-driven liquidity squeeze led foreign holders to sell gold for dollars and contributed to a roughly 20%–25% wartime drop. He argues that such a pullback does not end the debasement thesis and that gold’s inflation-hedging relationship can be unreliable over periods as long as a decade, despite its record over a century.

Johnson says passive and target-date funds can amplify Treasury declines when falling prices and rising yields force sales to maintain portfolio weights, and describes Bessent’s buybacks as addressing dislocation in a thinly traded part of the curve. Separately, Johnson says persistently widening credit spreads or a rapid dollar rally would be more concerning signals of systemic stress than a brief spread widening, while another speaker cautions that a private-credit blowup is a real risk whose timing is uncertain.