Thread by @SantiagoAuFund

Hi All. With recent market action in equities and dollar, I have had several questions regarding...messages in support of...and challenges to (shocking, I know)...my outlook.

In order to try and provide some clarity...this thread will need to suffice for now.

1/

https://twitter.com/SantiagoAuFund/status/1268703151751786496

Long story short, the fall in Q1 & subsequent rally we've seen in last 3 months in equities is NOT due to the core part of my thesis. It IS part of "moments of great terror & disbelief along the way" part of thesis...but not how I envision equities moving to all time highs.
2/

Right now seeing reflation of GLOBAL equities & risk assets due to CB support & easing of $ liquidity.
The core of Milkshake Theory relates to US equities rising while ROW remains under pressure due to $ liquidity falling. So while this isn't surprising, it also isn't IT.
3/

The reasons we have seen increased $ liquidity are two fold. 1st is obviously due to Fed actions and Balance Sheet growth (increasing supply).
This the money printer go brrrr meme that is basically mentioned in every conversation surrounding global finance these days
4/

2nd, reactions to Covid took velocity of money to zero. This caused the $ liquidity driven panic in March. There was no $ flow. BUT...bc trade collapsed...dollar invoices, rents, mortgages, etc...have been deferred. So dollars have not been subsequently needed.
5/

But even though these dollars aren't needed right now...they will be! They have just been deferred...not erased. What happens when the economy starts moving again...and these invoices, rents and mortgages payments are no longer deferred?
6/

Now some will argue the Fed will provide whatever is needed. And I agree they will try. But they are filling a bucket with holes in it. There is a black hole of dollar debt out there. And with an economy that is not growing...they are creating new dollars but not more dollars.
7/

That black hole represents the demand for the $.
Every $ that gets provided will get sucked into it. Because there is not just demand for dollars in the US. The eurodollar market and eurodollar debts in the world rival the US domestic debt and domestic dollar markets.
8/

And this is key because our monetary system is designed such that it needs either velocity...or new collateral to be added. The Fed can add this domestically (left side below) but Central Banks in eurodollar market cannot (right side) bc only the Fed can print $ collateral.
9/

#ButTheSwapLines

Yes...yes...I know...I'm constantly told the Fed will bail out the whole world via swap lines. Problem is swap lines aren't nearly big enough to plug dollar demand. Currently $450b of SLs extended. But almost $2T in eurodollar loans are due in next year...
10/

And even if they try...it goes back to point above...they are not creating MORE dollars. They are creating NEW dollars to plug the hole and keep dollar liquidity from contracting like it did in March. Pouring new liquidity in...to compensate for old liquidity leaking out.
11/

This is exactly what Fed has done so far. They have taken the Fed Balance sheet to $7T...up 50% in a few months. And what did they get for it? The DXY at 96. The same place it was 6 months ago. and 18 months ago. And 5 years ago. Why hasn't it crashed?
12/

Now...people always ask me...what is your stop? Why haven't you gotten out yet? Well...if I have a stop, why would I place it at the same level its been for 5 years? And depending why it went there...it might not even be at 90. So the answer is...I don't know.
13/

What I do know is that a certain level on $ isn't going to fix the problem. Unless there is a change of behavior on a global level with regards to $ Funding & $ Debt the problem just gets bigger not smaller. A lower $ allows current behavior to continue. Which makes it worse.
14/

Now...can the Fed and other CBs continue to do things in the short term to provide $ liquidity?
Of course!
Does that mean I could be wrong?
Of course!
Just ask all my twitter trolls...they will be happy to point out my many mistakes.
15/

Which brings me to the types of wrongs.
-Totally wrong
-Early
I know that w/o change of behavior I'm not totally wrong. Just look at .com bubble to GFC to Covid crisis...to know that problems can be deferred but not fixed unless do something new. & nothing new has been done
16/

Which brings me to early.
This is VERY possible...
and YES, this would still mean I got it wrong.
Early wrong is annoying.
Early wrong hurts.
But early wrong is not fatal.
And if you are strong, it doesn't kill you.
And it means you still have an opportunity to be right...
17/

Just like those with their calls on Uranium, or Gold, or the breaking of the CNY peg, or the JPG yield spike, or Trump doing something Presidential, sometimes these big macro themes take a very...very....long time to play out.
18/

I have been wrong many times.
Ive been very wrong on equities for last month.
And it hurts.
So its possible I'm wrong/early on $ & it falls further over coming months. If so I will be bombarded with the "How could you get it so wrong" tweets, emails, phone calls and dms.
19/

& know what? I'll deserve it.
Im aware Ive made a big call & have been been loud about it. Even friends who agree w/me have called me insufferable!😅
U don't get to take credit when right if don't take the arrows when wrong. This is not a game for little girls & little boys.
20/

But its still greatest asymmetric opportunity I've seen. And if I'm right, potential pay off is such that you can risk a small % in order to make oceans of profits. So if dont want 100% of portfolio in Equities Bonds or Gold, its worthy of consideration & worthy to be early.
21/

For those of you with me, I appreciate your support.
For those of you on the other side, and even those of you firing the arrows, I'd say this game is far from over. I don't expect it to be easy & I learn something new every day. But regardless, i will continue to fight.
22/

Many mkts at same level as a yr ago but uncertainty & stakes are now higher. Like it or not we are in the Super Bowl. Or maybe the Hunger Games. And many are watching. I guess u either want to be here or u don't. Regardless...May the odds be ever in your favor.
Peace ✌️
/23