1 May 2025
TA, Gold, and the Last Man Standing
Technical analysis (TA) cannot predict the future, and doesn’t pretend to understand the economy. All it does is track price action, look for repeating patterns and try to spot momentum. You might say it is as useful as astrology. It correlates with the economy, but investors are always ahead, on a parallel wave.
Worth listeing to Chris Vermeulen of TechnicalTraders, who does a short daily market recap. His style is relaxed tailor’s dummy more than showman. He reads the runes in technical charts. While TA has its limits, what Chris does well is to spot the rotations between asset classes. Money seems to be flowing out of stocks, but where is it flow to? Treasuries? Gold? Defensive safe ETFs like XLP (consumer staples) or XLU (utilities)?
His point right now is that money is quietly flowing out of equities. The pro.s are selling into every rally, the smart money is getting out and rotating onto safer ground.
Why into TLT? That’s where the Dollar Milkshake Theory comes in.
Generally speaking, if you expect interest rates to rise, it is best to avoid long-term bonds like those tracked by the TLT, because if that happens, you're locking in a lower interest rate. If you believe interest rates will fall, it makes sense to invest in a long-term bond fund like TLT. TLT tracks the Barclays U.S. 20+ Year Treasury Bond Index.
Most commentators expect the dollar to weaken under the weight of US debt. There will be less and less demand for the dollar as there is more and more dollar-printing. Makes sense, but Brent Johnson disagrees. His theory is that years of global monetary expansion have created a “milkshake” of liquidity. So first of all. let us examine how all this liquidity is created and where it is held.
The "milkshake" in the Dollar Milkshake Theory refers to the vast pool of global dollar liquidity, the dollars that have flooded the world economy since 2008, although not held exclusively in Europe, this pile of US dollars outside the US is called the Eurodollar market.
How the milkshake forms (monetary expansion):
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Quantitative Easing (QE):
The Fed created trillions of dollars to buy US Treasury bonds and mortgage-backed securities — injecting USD into the banking system. -
Low interest rates:
Cheap borrowing made USD attractive to global investors, corporations, and governments. -
Global demand for USD:
The US dollar is the world’s reserve currency. Most international trade, lending, and commodities (like oil) are priced in USD. -
Eurodollar system:
Non-US banks create "dollar credit" outside US regulatory oversight — more dollar-like assets circulate globally than exist inside the US.
Where the milkshake “sits”:
The dollar liquidity is held across:
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Foreign central banks’ reserves
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Sovereign wealth funds and pension funds
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Global trade finance (e.g., letters of credit in USD)
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Foreign dollar-denominated debt
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Offshore (Eurodollar) banking systems
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Dollar-based assets (e.g., US Treasuries held abroad)
The milkshake is not just inside the US — it’s a vast global ocean of dollar obligations and instruments, mostly outside US borders.
Flow diagram showing how the Fed creates liquidity
and how it flows offshore to become the “milkshake”
- . When the Fed tightens, it draws that liquidity back in. Investors crowd into the dollar. That strengthens the dollar, sucks capital into the US, and causes immense pressure on foreign economies with dollar-denominated debt as repayments must be made in the now-more-expensive dollar.
In time, the dollar breaks too. Too much demand becomes unsustainable. The US buckles under its own interest burden, foreign trust in fiat evaporates, and the last man standing is gold.
Dollar Milkshake Theory schematic – capital flows
Brent Johnson says gold will rise when everything else fails. That’s the idea. It's not just about price movement. It's about trust. Fiat currency is not a promise in which one can have confidence. Gold is.
Chris Vermeulen thinks we could see a 20–30% drop in markets after the next bounce. He’s watching the rotations. Gold might be going retail now. Maybe even bubble territory. Maybe gold will collapse with the main indices. Or he says wait for a correction, maybe to 3145, and could buy in then.
David Lin, meanwhile, is the brisk counterpart. He interviews big names in economics, sometimes sharply. He and Chris recently sat down for a good discussion: negative growth, volatility, distrust in banks, everyone seeking a hedge.
Gold is the refuge. For now.
Gold price trend vs VIX vs SPY
Eventually, though, even gold may sell off in a global fire sale. But you will have sold and will be in mountains of cash, possibly a new currency. The trick then will be to buy the surviving companies from out of the ashes.
If we live that long.
Interview with Chris Vermeulen and David Lin
Dollar Milkshake Theory primer
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