The End of U.S. Dollar Empire? | Ash Bennington & Warren Pies

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0:28Welcome back to Real Vision. I'm Ash Bennington. Today, I have the pleasure of speaking with Warren Pies, founder of 314 Research. Warren, it's great to have you with us. There's no shortage of topics to talk about. And what a moment to have you on during a report recently across my desk that you've written called Twilight of the Empire. It's a sobering title. The report underneath it is sobering. Big picture, 50 ,000 foot view. Where are we right now? Well, yeah, it's great to be back. and it is a I mean these are the times you live for in markets big picture where are we I think look whether you want to technically call this a bear market or not I'm just going to say this is basically a bear market from the at the lows and we're in one of those moments where the fears are existential it's not cyclical it's not about is this going to be a downturn yes that's part of it?

1:24Will we have a recession? Yes, that's part of it. But the overarching concerns center around the structure of the global financial system and how the United States fits into that and all these assets. And so we've been picking up on just very odd cross asset flows and behaviors, which tell us that there's a lot of existential and structural concerns in the background here. Yeah, I'm going to read just from the Wall Street Journal that set it up this morning with some of these statistics here. So Monday, the Dow lost 1 ,000 points. S &P 500 performance since Inauguration Day is now the worst for any president up to this point going back to 1928, citing Bespoke Investment Group for that statistic.

2:10And Dow headed for the worst April since 1932. These are the statistics that people are looking at right now. This is where the concern is. Your report does take this a look at the, as you say, the existential threat, some of the broader trends below the surface, the market plumbing across asset, understanding what's happening underneath equity markets. You have a chart at the very beginning of this with a very sobering title. Is this the end of American exceptionalism? And this chart looks at the divergence between 10-year treasury yields and DXY, a proxy here for the U.S. dollar. Talk a little bit about this chart, what you're seeing, and why you believe it's significant.

2:54Yeah, absolutely. So we wanted to start the chart report and just kind of understand how unique, it feels unique, these moves. So we wanted to frame that up in our report. So the first thing we did was to look at over these 10-day periods, when have we ever seen the 10-year yields up by 40-plus basis points while the dollar index is down by 3 % or more? And this kind of came from a question that a Bloomberg reporter had posed to Scott Besson. She said, these are the conditions that are happening. What do you make of this? Is this a de-dollarization type of trade? And he blamed it on hedge fund de-leveraging.

3:35So we were like, we want to see how unique this is and what the potential causes are deduced from cross asset flow. So there are 12 days that we found historically that match this sell off in simultaneously in the 10 year and in the dollar. And if you go through those cases, most of them are logically are risk on rallies. So usually it's coming out of a period of stress, and then you are rallying on risk assets like equities are rallying alongside the sell-off in the dollar in bonds. Because what had happened before that is the fear had caused people to flock to safe havens, and now they're moving into equity.

4:22So that's what you usually see, and we did not see that this time. Rather, the S &P 500, as everyone knows, was also down big over this time. So that adds another layer of uniqueness to this episode we've just gone through. So we had, just to restate, 10-year down big, dollar down big, S &P 500 down big as well. When we go through that chain of events and we kind of filter history for that, the only time we've seen that was in the three days basically around the GFC. um the these were the days right after the Lehman bankruptcy in September of 2008 so that was a real uh and so then you look one more layer into that gold was up huge during those days back in the GFC and again gold was up this time as well hi Raoul here listen I think we've got until 2030 before the economic singularity arrives now it might not be the exact date, but it's around then.

5:30So we have about six years to figure out how to unfuck our future. I've put together a report to help you called Prepare for 2030. It's going to help you take the first steps in that journey to make sure you're secure past 2030. So just click on the link below and start your journey now. So what was going on then was it was just a, I don't want any counterparty. I'm worried about the entire global financial system, GFC fears. And that's why you buy gold. No counterparty on the other end of that transaction. It's the most safe of the safe havens you can go to if you think you're really going to have kind of an Armageddon type of event in finance.

6:14This time though, when you go the final layer down and you look at gold priced in a number of other developed market currencies, look at gold in euros, gold in Swiss francs, gold in Japanese yen. It was flat to down across these currencies over this period, which makes this set of cross asset flows completely unique to history. We now see a picture where bonds were down, the dollar was down, S &P 500 was down, gold was up in dollar terms and gold was flat across other developed market currencies. When you put that mix together, it pretty much paints a picture of a flight out of US assets and dollar-based assets.

7:04So this was the first, this was real money sellers. And the strength we saw in the yen and the Swiss franc and the euro tells me that these real money sellers were mostly located in developed markets. So that's the sobering, I think, in why you've seen so much alarm in markets and among commentators. And even if people haven't pieced it together exactly the way I just did, they can sense, if you're a market watcher, you can sense something has been off. Yeah. So let's talk a little bit about this. Obviously, trade and tariffs very much on the mind of investors right now. Since this is driven in many ways by the view of policy positions, I want to try and give the other side of the story.

7:50I imagine if we had someone from the administration here, and we're trying to get someone shortly, their response would be that this is about resetting global trade. This is a negotiating position, and it's about understanding the flow of goods trade across the world. We're less than three weeks into this year, give it time. I would imagine that would be their position. We're not there yet. They're trying to get a deal. That would be the view that I would suspect we would hear from the administration. What's your response? Well, I don't have a bone to pick with the administration. I'm not like a partisan in that way.

8:24So I'm just going to say, though, that the stated goals around the tariff policies have always been at odds. So you can't raise revenue while simultaneously lowering barriers to free trade everywhere else. It's incongruent. And putting that aside, really, though, the thing that I think shook confidence up for me and for investors across the world was how this tariff plan was unrolled by Trump with taking out that poster board. These were not reciprocal tariffs. These tariffs reflected a belief, if you take them at face value, that any trade deficit reflects us getting ripped off. And that's just – I think that's economic – it's economically illiterate to think that way.

9:19I mean, you take a country like Vietnam or just much poorer countries, it doesn't make any sense for us to run a trade surplus. What are they going to buy from us and create a trade surplus, the world's richest nation and some of these more impoverished nations? And so that, at the heart of it, shook a lot of confidence. And I don't think the actions since then have calmed anything down. It doesn't feel like there's a real coherent plan. I still don't think when you zoom way out, like we can get really deep into this doom fear right now and like, oh, we're going to dollars going to lose reserve currency status.

10:02I think it's important to avoid bearing the lead. I don't think that's how this ends up. There are too many negative feedback loops that run back to the White House and back to policymakers in the current posture that we're in that will prevent them from going down that path. I think that deals will start coming and the administration will have to roll much of this back and the dollar is going to be fine. Our companies are still the most innovative companies. We have the best capital markets, rule of law, private property, respect for private property. These things are the lead that the U.S. markets has over every other possible venue for those global flows is insurmountable in this short amount of time.

10:51And I believe it's going to hold. So when I zoom out, I'm okay with it. Yeah, it's important, obviously, particularly during moments of uncertainty, to give both sides of the story. And the view is for people who support the policy that this is, again, we don't take a position here one way or the other at Real Vision, I don't certainly, this idea of just trying to understand and sort through what's happening. And there's a view that says this is an opening salvo. This is the opening position. And we're going to move to a deal. We've had Scott Besson on the show, Secretary Besson on the show here at Real Vision.

11:24Obviously, a guy who ran a hedge fund who understands global capital flows, who understands cross-asset, cross-border flows. So you point out this idea of the feedback loop that as this information gets priced into markets, there's a policy response. You don't just have a sort of a flat response. There will be give and take. But it is a concerning moment, obviously, for a lot of people. Talking of which, we talk about cross-asset. I also want to take a look at the chart on page two, cross-asset, cross-border flows, where you're looking at post-COVID foreign equity holdings versus foreign asset holdings of U.S.

12:02Treasuries. This is an interesting chart as well, if you could walk us through it. Yeah, this is just the value of foreign equity holdings and foreign treasury holdings. And so it just kind of ties that closes that loop, you know, on the other side of this cumulative trade deficit is a recycling of

12:26those dollars, which once we buy goods from other countries into our capital markets. And so to me, this is the reciprocal of the trade deficit is those dollars come back into our capital markets. And so we've seen that, especially post-COVID as the trade deficit and the current account deficit has blown out. You have both treasuries and equities. If we looped in every other asset, it's about$30 trillion total of U.S. denominated assets that foreign players own. And so it's a huge number. It's$16 trillion of just equities, which I think showed me when I started digging into it how vulnerable the equity market is.

13:11Everyone talks about the vulnerability of the treasury market. I actually think that the equity market is more vulnerable. There's much less space and much – I can identify much fewer marginal buyers for US equities if we did cut off these flows indefinitely. But on the other hand, I think there are rebalanced flows that would happen into treasuries that could actually take off some of this treasury debt. You could see pensions, which are really way overweight equities, and households, which are way overweight equities, move back into the debt market at 5 % yields or something like that. So not to get ahead of ourselves, but this is the other side of the trade deficit.

13:53So when you close all those trade deficits immediately, you end up stopping this flow of money into our capital markets. And so that's what we're showing here. Yeah, and this gets into the balance of payments aspect. So when you talk about current account deficit, the flip side of that is the capital account surplus precisely to the point you've just made. Yeah, absolutely. And so I think it's the this is why I really think you need to move. If I was going to advise the administration, I think that, number one, we should identify our goals. Like, do you want to raise a little revenue? Do you also want to bring down trade barriers?

14:35I think those are foreign trade barriers. I think those are good goals. It's about how you go about that. I think you put a flat tariff on globally and then you work backwards and shore up any potential deals with friends and developed markets and trading partners and allies. And you shore up those allies before you go after China hardcore, because that's what it feels like, is that we're at, you know, that's the one pain point. Those are, that is a country that, you know, they do manipulate their currency and they have broken WTO rules. And so it makes some sense to try to bring China to heel.

15:24But I think you need to have you can't be fighting Canada and Mexico and the UK and Japan at the same time. I think you got to pick and choose your battles here. Yeah. So let's talk a little bit about risk asset prices. Obviously, you talk about this move toward the direction of an endgame. What do you think that looks like in terms of the sequence, the process, the path to getting back there in terms of what happens to risk asset prices along the way? well i i mean if i had to guess it is just a guess so i'm just saying philosophically what i do in a situation like this because it's such a volatile period to try to get into like trump's mind in particular and understand is there an element of 40 chess here or is he just kind of uh going off the rock off the rails and so i don't know that and i don't have an edge in determining that so what i think you got to do is really focus on technicals and price price action history objective indicators so that's going to be what guides me ultimately but other way i was just i was just chuckling to myself when you said that because i guess part of the game of playing 40 chess is the perception that you might be going off the rails precisely you can get yourself wrapped in a pretzel but you might just be dealing with like uh you know kind of uh economically illiterate old man or you could be dealing with the most savvy uh tactician the world's ever known and then ultimately we won't know i will never know you know uh and so and you'll have people tell you both at the same time my feeling is that the uh objectively i think that this this was the not the optimal path to go down tactically even when you just state the goals out top like i said so what i think is going to happen is we're going to have a series of deals you'll probably see Japan and Vietnam come first.

17:26It's not just like, there's a lot of people say, oh, we can't get a trade deal done in 90s. It's not going to be a whole finalized deal. It's going to be a deal in principle. It'll be outlined. It'll create the framework that other deals will fall into place with. Where ultimately tariffs settle, I think some kind of 10 %-ish across the board is what we're looking at, depending on how much give there are from trading partners to get that down. But that's a palatable level of tariffs. Ultimately, everyone can him and ha over it, but 10 % would have been fine out of the gates. I think the market would have digested it and moved on.

18:01And you could have built it as like, hey, this is a way to pay down our, to help our fiscal situation, give us more fiscal space, which is obviously needed in the United States. But this is the fascinating thing about this. This is kind of the paradox, right? Which is, on the one hand, markets hate uncertainty. Everybody knows that. It's the oldest truism in markets. And on the other hand, the only way to negotiate to get deals is to add some layer of uncertainty, because if your adversary in the negotiation or counterparty in the negotiation knows what your position is at the outset, then it's very difficult to get a better deal than you might have gotten just by by by making the statement and saying, here's where our break positions are.

18:41Right. And nobody wants to do that. This is the this is the weird game theory point and counterpoint that we find happening in global markets right now. Yeah, I mean, this was something that my research partner, Fernando, and I talked about leading up to this announcement. And Fernando in private had said, wouldn't it be great if Trump had a spreadsheet where he put every country's tariffs on that spreadsheet and just said, this is what they tariff us at, this is going to be our new tariff rate. And nobody would have gotten upset with that. And so I, I, you know, I, I think that when he first pulled that poster board out, that's kind of what we thought was happening.

19:20Then the, the, the numbers were totally disconnected from reality. And so I think it is a matter of what we, we have a certain amount of leverage, a lot of leverage. I think Trump has believes that in the United States, it's a matter of kind of defining what that, what, what you want out of the deal and making it a realistic ask uh and when you go too far and you overplay your hand like this i think it actually lowers your leverage because you're you now have this kind of uh collective that's turning against you um and so i think he's overstepped his his bounds um if that was if this was some kind of tactic to just act crazy or act unreasonable in order to to anchor people up here and then bring them back down.

20:08Yeah. And anchoring strategy. This is, it is, it is very interesting and very difficult to know. I mean, the one position that I feel pretty strongly about right now is that, look, it's, it's, it's the end of the first quarter. We don't know where the game is going to go. Could get worse, could get better unknown. And, and maybe to a certain extent unknowable, but, you know, having you in here to walk us through some of your views, because you've done the research on the data, as you say, when you find yourself with this uncertainty, the one thing that you can rely on, you always have a price.

20:38You have a price, you have a price history. You can put those things on a chart and you can look at it against other assets and try and get a sense of where these things are or may be going. As we walk through this, you have a chart here, and this is just on page 11, where you walk through de-dollarization scares. This goes back about 18 years. Tell us what we're seeing here as you, because you have, it's a really interesting chart because of the way it's structured with these, with multiple columns. You can look at 10-year yield, dollar index, S &P 500, and gold, along with some other cross currencies on this.

21:15When you see a chart like this, and you see where we are today at the bottom of the chart, 2025, 411, 410, talk us through what you see when you look at this table. Have you ever wanted to trade Bitcoin but haven't dared try? With Plus500 Futures, you can trade crypto without the hassle of opening a wallet. With just a few clicks, you can register and start practicing with their free and unlimited demo. See a trading opportunity? You'll be able to trade it in just two clicks. Feel ready? You can move to real money with as little as$100 once your account is approved. And the great thing is that in addition to crypto, Plus500 gives you access to a wide range of instruments.

21:54S &P 500, NASDAQ, GAS, and much more. Explore equity indices, energy, metals, Forex, and beyond. With a simple and intuitive platform, you could trade anytime, anywhere. Experience the fast, accessible futures trading you've been waiting for with Plus500. With over 20 years of experience, Plus500 is your gateway to the markets. Visit us.plus500.com to learn more. Trading in futures involves the risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus500, it's trading with a plus. this is exactly really just the visual representation of the the what i laid out at the beginning which is showing how unique these this price action has been which i think is showing there's real validity to the uh to the fears that are out there in markets that this is an existential fear that if we did drive into this isolationist type of um posture that there are real negative results.

22:55The area that I think, again, just going back to what I laid out at the beginning of the conversation, the area of the chart that I found interesting was over this 10-day period that we're measuring, gold priced in other currencies. That's in the bottom right hand corner. You could see gold, I think it was in the Swiss franc and in the yen and in the euro was flatted down. And that was what makes this such a unique time. And there was this concern. The reason we did this was there was a concern or a thought or a theory from Scott Fessent that this sell-off in Treasuries was really about a relative value hedge fund unwind, basis trade unwind.

23:40And this tells me that's not everything. We didn't see that in open interest for Treasury futures in a way I would have expected if it was just basis trade anyways. But this tells me there were real money sellers. They were likely not China either. That's the other thing is we had a – there was a fear out there that China was doing this retaliatory selling of U.S. treasuries in response to the new tariff regime. And I don't think that was happening either. First off, it's very counterproductive for what China is trying to do. If they were to sell our treasuries en masse, it would pressure their currency higher.

24:21And that's obviously one of their goals is to keep their currency artificially weak. So when I go through all the options, basis trade on wine, treasury, reactive selling from China, like punitive selling from China, Or just did we see real money stop moving into dollar assets from other developed markets? And that's what I think this table shows. That's what the evidence shows, that US investors in Japan and Europe were ultimately sellers of dollar assets during this period of time, during this weird risk-off de-dollarization period. Let me just ask you this while we've got the chart up on the screen.

25:08You mentioned gold and CHF, which, Frank, that dark maroon color, this down almost 3%. Explain why that's significant. Just walk us through the specifics, mechanics of that trade. Well, I think the most important, what I take away from it mechanically, I don't know if this is where you're going at, but what I take away from it is you see all of these dollar-based assets. We already went through treasuries, the US dollar itself as an index, and then S &P 500 all down. Then you see gold in US dollars up huge, but gold in Swiss francs down. What that tells me is that there were dollars, Swiss francs coming home.

25:57So Swiss investors selling out of the first group of assets and moving back, pressuring up that currency, pressuring up Swiss francs, pressuring up Japanese yen, pressuring up the euro. As they repatriate, they get out of dollar-based assets and move back to their foreign markets. And they have to translate into their own currency. And that's creating pressure in their currency. And so therefore, we're able to deduce from that this kind of flow that was happening, this real money foreign selling that was happening in our markets over this period of time. And so I think it's a really important signal.

26:35Like if you go back to that table and you look at all the other periods, especially the GFC, when you had this combination where you had treasuries down, dollar down, S &P down, gold up in dollar terms, gold was also up in all those other currencies. All those other currencies were still moving into gold. They were getting out of financial assets. Gold, one true counterparty free asset, not happening this time. It wasn't a fear about the overall financial system. It was a fear about the dollar-based assets in particular. So essentially, these are Swiss franc and yen coming home. It's not that it's a pair trade where they are selling gold and buying the currency.

27:19It's just the repatriation. So you're seeing the price of the foreign currency rising faster than the price of gold in terms of that local currency. And you're seeing that's why you're seeing that delta there and those relative underperformance of gold to the local currency in Switzerland and in Japan. I know this gets complicated. Yeah, exactly. No, that's exactly what it is. Yeah. And then the point, I guess the next level point is that these are real cash money buyers and sellers. This isn't a mechanistic phenomenon that you see for an unwind of the basis trade, the idea that you're offsetting on the basis trade specifically here relative to U.S.

28:01Treasuries. Yeah, if this was just a bunch of hedge funds that were levered up and then forced to sell, you would have just seen open interest in Treasury futures fall. We didn't see that. You wouldn't have seen this kind of action that we're showing on this table. It would have been more of this innocuous deleveraging. And that's what I think the hope was during this whole trade. And I'm not saying there were some relative value trades getting unwound in here. The marginal buyer of treasuries has been U.S. hedge bonds who levered those positions up quite extensively over the last 10 years or so.

28:41But that's not what I think was happening. I think that the real gist of what was happening, this was a real money selling treasuries, real money selling U.S. assets. And I think it's important to look at that, to understand that's the first whiff of what could happen. Now, I do not think this was like a true structure. Now, the argument is, is this structural? Will this continue happening? Look, if these guys really were like, I can't be in dollar assets, period, you'd be limit down every day in the S &P 500. Like that first chart we went through showing foreign holdings, there is no marginal buyer to sop up that kind of selling if that's really what was happening.

29:25So it's at the margins. It is not a full capital R reallocation at this point in time. It's just a cooling is what I'd say a shot across the bow. And I think it can be I think it can be fixed, obviously, you know, because the motivations are there for all part for all parties to fix it. And and there's much to be much benefit from the current system. But it was real money for this moment in time. This was real money. It was unprecedented. Yeah, I also want to go to this chart on page 12. And this maybe is a measure that gives you a sense of perhaps the pain and the perception of the pain here in the United States.