MacroVoices #553 Brent Johnson: Disparate Housewives

Brent Johnson’s “Disparate Housewives” report focuses on a potentially closer relationship between the Federal Reserve and Treasury. He argues that the Fed has autonomy but is not fully independent: Congress created it and requires it to testify, while the separation of powers has helped underpin U.S. credibility and predictability. Treasury Secretary Bessent’s involvement in areas such as buybacks and swap lines suggests more coordination than in 2022, when Powell raised rates to curb inflation as Yellen drew down the Treasury General Account and reverse repo to return liquidity to markets. Whether coordination is mutual or pressured, and public or private, is unresolved, but Johnson says it could have major market consequences and may be needed for the United States to compete with China.

Johnson sees the dollar’s break above 100 as reflecting demand for higher rates, and says Warsh raised rates to establish credibility rather than cut them as many expected. He sees no compelling alternative currency: Europe faces war on its border, weak growth and no fiscal union; Japan has its own problems, and China’s market is relatively closed amid the trade war. Global trade, dollar borrowing and companies’ need to match dollar liabilities with dollar revenues also support demand. His 2019 “dollar milkshake” thesis anticipated a sovereign-debt crisis that would drive the dollar toward all-time highs, but authorities instead delayed the crisis. He still sees the framework as useful and the dollar’s longer-term upside as substantial, while warning that an uninterrupted rise could break things; near term, its high level and momentum leave room for a pullback and rebounds in the euro and gold.

Gold was around $4,100 an ounce. Johnson said it had rolled over after moving above its 200-day moving average and was near support; a break could bring another 10% decline, or a fall toward $3,700 if the dollar index reached 110. He called the area a place to start nibbling, noted a recent golden cross that could precede a large move higher in coming weeks, and said he would likely buy a dip. He described revaluing U.S. gold certificates from the official $42 an ounce to roughly $4,100 as requiring Treasury direction and Fed agreement, potentially crediting about $1 trillion to Treasury. That would be an accounting change, not new capital; spending the credit would add money and dilute each dollar. He does not expect revaluation soon, particularly with a strong dollar, but sees the gold as insurance. Stablecoins could let Treasury issue bonds, raise cash and make payments without relying on banks, potentially reducing the Fed’s leverage. He does not expect a gold-backed stablecoin, though he would not rule one out.

Patrick said Treasury yields had reached 5.35% for the 10-year and were nearing 5.8% for the 30-year, while equities remained near highs despite only 20% of stocks trading above their 50-day averages. The market-cap-weighted S&P 500 was near highs, but the Russell and equal-weight S&P 500 were in decisive downtrends. He put systematic selling triggers near 7,700 on the S&P 500, about 2.5% below recent highs, with potential sales of as much as $85 billion in a down market; a correction in a leader such as Nvidia could deepen pressure. Oil near $93 was an inflation and rates risk: a move through $95–$96 could signal another advance, and a break above $100 could further pressure rates and equities. Patrick also said the dollar had broken out, with the euro potentially weakening toward 1.10 or 1.08. He proposed a defined-risk Canadian-dollar futures put: the 70-cent put expiring November 6, 2026, cost 22 pips, or about $220 per standard contract before costs, with a loss limited to the premium and roughly 3.5-to-1 potential return if the currency fell to 69 cents.

Johnson sees the current era as more like the postwar period and early Cold War than the 1970s, and expects prolonged U.S.–China competition rather than an imminent resolution; he prefers that to a hot war. He compares U.S. strains with Rome’s from 120 to 60 BC, citing foreign wars, inequality, political infighting and personality cults, but says the analogy does not determine the outcome. He expects the United States to consolidate power rather than become a second-class state, while great-power rivalry—centered on China or potentially a wider bloc—pressures countries to choose sides as globalization recedes.

Johnson says the AI race is inseparable from that rivalry and U.S. leadership depends on securing enough energy. China’s electricity output could support a cheaper AI industry even if its models remain near, rather than ahead of, the frontier; weaponizing chips and traditional energy follows from the broader contest. The host raised the possibility that cheap Chinese open-source models, including models usable locally to keep company data off cloud systems, could disrupt private credit built around AI. Johnson called it a concern without fully agreeing or disagreeing. He sees AI as a productivity tool that could ultimately benefit humanity, but warns of unemployment and a bumpy transition, potentially prompting universal basic income or an expanded welfare state. Patrick added that natural-gas short positioning was at record levels and the zero percentile across one-, three- and five-year periods; early-season U.S. cold could force short covering and trigger a substantial, volatile rally.