Video Transcription:
A Global Recession: Update from Raoul Pal
Hello everybody and welcome to the lunchtime chat with Rao as we finish up the first week of global recession what's next we've gotten hundreds of questions for RAL about how the first week has gone and what we can expect from the second week so I just like to say we're obviously not gonna be able to get through everybody's questions but we're gonna try and get through as many of them as we can RAL thanks for joining us today looks like you're coming to us from Little Cayman with a couple of dogs in the background I didn't know yeah we've got a couple of sisters and typical sisters they love each other and hate each other so they're they either trying to play with each other or growling at each other yeah it's keep me company looks like they're cooperating with us today so hopefully that continues but you know maybe we'll get one of those only on live TV moments but we only have a little bit of time so let's just get right into it so you did two interviews for us in week one Kyle Bass and Howard Marks two to legends in their own right and they really look at the world in different ways and and obviously nobody looks at the world quite the same way that you do so what were two things two takeaways that they that you got from each of those interviews that really surprised you and that you found you know interesting and useful for investors again the whole purpose is that this week was to understand what other people thought going forwards yeah people are familiar with my view and I did the expert view at the beginning of the week explaining how I thought this would play out so I wanted to find out from Kyle first what he thought and I think that he is more optimistic and don't see the potential that many people have talked about Hugh Henry as well for a stock market that continues to go higher but he also sees the drag on growth that goes on much longer and that drag on growth having a knock-on effect to China and Hong Kong which has been one of his key themes so it's very interesting to see that global the the global issues that this all creates and with how it marks it was I wanted to understand from him what the opportunities were in distressed when the Fed had come in so fast but even more on Buffett complained they had no chance to buy anything yeah and so you know you try and get a grips with okay what could the opportunity set be and I think Howard interesting and I think probably within sexual integrity says he doesn't know where it lies but he knows what he'd like to happen he'd like to where to buy things cheap but he says there is a tremendous at uncertainty and the ability to forecast this is extremely difficult which I concur with yeah I think that's it's it's good to have that perspective that even some of the most successful and storied investors are being are uncertain what's going to happen with this market so that was a great take to have and just moving on to you know Edie Harrison our own interviewer here talked to Richard Kuh on Wednesday renowned economist from Japan what's your take on his opinion that firstly will experience a rapid recovery as people have been locked up for so long they just want to get out and spend some money and secondly that that recovery is is not going to last as populations will become net savers because they're so traumatized so it's gonna be this quick you know jolt in but but the the psychological effects are gonna last yeah I mean I love Richard loved his book the holy grail of macroeconomics I think his framework is is really spot-on for these times I don't necessarily agree with a hundred cents of what he says but I really really think it's important work I think that idea that and we've seen it in China basically where disarms pent-up demand but then things come down and this is what I've been talking about from day one it kind of looks like an inverse square root or the square root mirrored and the flat path of the square root is sub zero growth year-on-year so we get the rebound and then it flattens up at a lower level and I think that's dead right and I think people will become savers I think they're going to change their behavior and becomes a B so I think that's right and I think Richard COEs idea that without massive fiscal stimulus the entire private sector is going to continue to deed leverage and that's deflationary and that is the issue that he's talked about in the past a balance sheet recession I think that's spot-on and I think it's still I think the most likely outcome for my mind yeah well if you want more on on that sort of deflationary Doom loop you should definitely check out Rao's exper view from the first day but yesterday we had on former central banker and and economist William white who made an interesting comment which was that he believes that all governments across the world are technically insolvent but he says that the market has essentially said we think you can sort it out in a non inflationary way and we're going to to price your your bonds as such so what do you think about his argument that yeah everybody is technically insolvent I don't I don't agree I depends how you define insolvency I think solvency is do you have the cash flow to pay your debt that solvency now governments don't have cash for tax and cash flow from taxes but they can issue more currency or issue more debt and that doesn't look to be an endgame in that so I guess we might be talking about similar things where the investors are giving them the benefit of the doubt I mean nobody's gonna get paid back ever and all of this debt we know that I mean that's the agreement between central bank's and everybody else is nobody ever gonna get paid back so you know it's just get on going and rolls up and rolls up and rolls up so that whole debt thing is not going away yes technically they are insolvent if you looked at in a traditional austere conservative model is do my tax receipts meet the outgoings well probably not and therefore you could be considered insolvent but they're just create more money but as well if you can just go negative then can't you remain solvent forever because it's it's just about servicing the debt not actually paying it down in the end so if everybody's willing to go to go negative you pushing it down further - yes and unless or until you get to the theoretical tipping point and none of us know where that is yeah all right well then let's get into your view we've talked about some of the other views we had on so on Monday you did that expert view and have you seen anything this week either on real vision or in data that that changes your framework from that Monday expert view you know you stayed pretty true to form but but you know there's a lot of stuff happening very quickly yes no I'm monitoring a lot of trying to see what activity goes on in other places and they've had the virus earlier and nothing to me yet suggests that anything has dramatically changed away from that thesis there's some good granular data I saw from Goldman about China basically what China's done has had a manufacturing rebound because people got back to work to manufacture stuff consumption remains low in that in that mirrored square roots formation as does other parts of the economy so know right now I think it's I think it's on track I think bond yields have been drifting lower as I've suggested they would and I think the dollar has been starting to eek higher as I thought that that would be the case and I think those will give us the signal that were shifting into the next phase so just to reiterate for me the bond market let's say 2 year yields going towards zero so breaking this kind of 15 basis points area that they're in now that have been around for a while and moving let's say towards 5 or to 0 that's telling us that you know the bond market which is normally right is sensing that this is not a rebounding growth this is a that that but that pattern that we've been talking about ok so that would be the confirmation of your thesis what would be the thing that makes you rethink that that you know the you always work in probability so you're never saying this is always good what would be the thing that makes you shakes your view if I saw that consumers went back to as they were sure some things aren't allowed to do so that that's gonna slow things down but if it's not let's say consumers are not bumping up against a restriction sealing by government and so they're free to do what they want and they choose not to do certain things so they maybe choose sorry they they choose to go back to as they were if I saw that let's say Spain is it opens up which had a really bad look they're not Italy that people don't look like they've been affected by it and returned to normal quicker than anticipated so and keep behind that it's the human behavioral aspects so a strong summer season in Ibiza this year I don't think the nightclubs are gonna be allowed to open but yeah that would be that would be an indicator to watch okay so that was week one and and it's really only just getting started week two is going to be just as big just as many names and you really kick things off pretty strongly with Mike Novick rats can you give us a little bit of a preview of what viewers can expect so nobody interesting obviously we share a lot of common background and with friends but the main thing about nuovo he has this and Dan Moorhead is similar and Dan and tap the arrow similar is real macro guys with real deep experience of the macro but real deep experience of the crypto digital asset space so Nova is fantastic for that so just at sea have a ha ha these whole worlds come together because they are blending and mashing together at probably the most important point in all history so I wanted to get that understanding for Nova that these two worlds colliding and how this all is creating a larger narrative that incorporates things like gold and the dollar and all of the things that I've been talking about and you know different views to me as well and you know he's a very smart very well accomplished macro trader so I really want to get his views done that well I actually just finished watching the final cut of it today and I can say that it's it's well worth the price of admission but moving on to a few of the other ones one piece that's really really exciting that we have is you interviewed Hugh Hendry and he brought up a documentary and a book that really spoke to him that was that was written by dr. Richard Werner the princes of the yen and in the you know two weeks since we had him on and he and he brought this out we've been able to set them up to do an interview for us so they're coming to us next week I haven't actually seen the princes of the yen I'm sure you I watch I watch immediately after that night I interviewed Hugh I watched it got a glass of wine watched it fascinating I'm not sure I understand agree with it but it matters not it's a very interesting documentary and Richard Werner is a very interesting thinker that has been undercover for from several years now and I think you two mentioning it he blew up on Twitter and then I think you know he's got a very important message in a very unique way of looking at things and I think Hugh's inquisitive mind it'll be it'll be fantastic viewing well he inspired other people too because it came up in Brent Johnson and William White's conversation so Hugh has has really sparked something and Richards Richards work has come back to prominence well and then and then on Friday it's looking like we're gonna have Kiril Sokolov back I know you have a have a great relationship with Carol and he's you know he's known to the pros but maybe not as much to the general public in the same way a Paula Tudor Jones or Novogratz is can you give us a little background on Kiril and why you know he's such a big name for us here on real vision I would love to say that global macro investor is the most prestigious of all financial research services but actually 13d is Carol's because been doing it longer he's incredibly well-connected he's incredibly smart and incredibly nice guy and a very unique thinker and he knows everybody and so though that combination and extraordinary inquisitive powerful mind put those things together Carol is it is absolute dynamite yep and then as well you know we recently launched our our tiered memberships here at real visions so if Carol and Richard Werner and Mike know forgots aren't enough we've got even more for you on the on the plus tier and you're talking to Alex curvature we've got a three-part interview with Mark Mobius and Jim Rogers and Simon Ogas I believe looking at China Hong Kong and the rest of emerging markets that Michael Nicoletta sent our own Roger Hirst conducted for us can you tell us a little bit about what we can expect from you and you and Alex and then as well why you thought the emerging market theme was so important to do this three-part interview one of the smartest people do I know he comes at everything differently and he's distilled he distills the world down to what is the best possible trade you could do he's a very disciplined thinker but a massively broad thinker and he's able to take all of that information distill it down to the specifics and I think Alex of all people is exceptional of that and so I wanted to see where his bond thesis is now we're getting to zero yields I mean we're at you know in the long bond which is his favorite play of all you know I don't know where we are now but we're not you know it's not very far to go so how does that play and where does the quality trade move from once we get to the end of this phase now maybe it's negative rates and we just continue the trend to negative rates which i think is what will happen but maybe not maybe maybe there's a better trade maybe it's gold and Alex it's just a really really great guy and I really like carry things and it it's just super interesting so love that yeah along with you he is one of the guys who has has really nailed the bond trade the over these past you know really two years it's been it's been about a two-year trade for you guys and then if you could just touch on eeehm and why you think that's important I mean it kind of plays into your dollar thesis well it's a number of things why it's important one it's still getting crushed by the US right the dollar is just destroying everything in its path many of these countries have dollar debts and the dollar keeps going up once the dollar changes whenever that comes in a year two years six months who the hell knows I think it's probably eighteen months away then e/m becomes a ten-year trade if not longer and it outperforms in the meantime we've got a mess going on with kovat nem so we need to understand the downside here and the potential upside to come and the recovery is to be made out of this trade and I personally think there's a good leg further lower to come for all emerging markets and then I think you can basically buy and hold them for 10 to 15 years as that as the world stabilizes the dollar becomes less prevalent and is not crushing all its competition so you know that's why emerging markets are now you need to start understanding them absorbing all the information because it's not just gonna be about NASDAQ and Fang stocks in the next 10 years you have to understand economies like India yeah I know India is is one that we we've covered here at real vision forever since even before I was here but are there any other emerging markets that you think people should have their eye on not not to buy at this moment but that they should be watching to to see which which way this am thesis plays out yes I love in a world where supply chains of shifting and Europe's gonna have to change supply chains from from China I love Morocco because it is literally a 30-minute flight from Spain it grows all the agricultural products it has a huge amount of labor force it has an educated population and you know I've traveled extensively around there you know you've got great mobile phone connection everywhere you go everything else the ability for them to become a provider of labor but quality labor to Europe it's good so I'm interested in Morocco I've always been interested in Iran just because it's the cheapest of all like Russia as well as always extremely cheap and I like eventually again the problem is were in the bottom of the commodity cycle as well driven by the dollar and everything else so you know you can't really want to own Malaysia or Indonesia and that's all over the way but India it's not commodities play in fact cheap come on this is great for India so you know that's twice structurally I do like India overall South Africa commodity play East Africa it becomes a bit smaller these are frontier markets but they're interesting Nigeria commodity play so it's difficult to get away from the commodities and get to a real story and that's why you know I like Morocco and like India for those two two reasons over the long term not now well we we do have we're gonna go into like a 10-minute rapid-fire question round in just a second with one question that I'd like to to give you a little bit more time to answer it's an important question so this one came in from a brand new subscriber who said since the crisis I've lost my job and I've been trying to use my time constructively and that's that's why I signed up for real vision I've been watching the campaign religiously and and his question is why what would you like a newcomer like like him to most take away from the campaign I think almost everybody we're bringing on to talk about has been through crisis before to understand how they play out and how long they play out when things look pretty bad to you to know that as I talk about with emerging market it's the same with all of these things there is a downside and then there is the upside and just getting yourself told that you're prepared to take advantage of the upside what is the upside so if you've lost your job what is it that you want to do can you use your time relearning certain things people are telling you you probably need more savings do you have any way of holding back any of the income that you've got to make sure you've got some savings and then the other key important thing is can you generate excess income doing something else to keep you turning over waiting for the opportunity to come and then looking where the bet is so maybe maybe you say okay the bet is I want to work for an Indian tech company that's based in Silicon Valley that has an operation in the US whatever it may be you can create your career around macro bets it might be around digital finance I want to move into digital finance so I'm just use this time to learn about it because I think that is a huge system parallel system being built you know everybody should be thinking okay could I do that and I'll tell you a lot of friends of mine coming out of investment banks and asset management firms and moving all to that because they see there's a future there that applies their skillset so that's another really important thing is educate yourself about that future so then you can leverage it for yourself once you start coming fully into play yeah and I'm gonna borrow a quote from Brent from his interview yesterday and he actually borrowed it from Mike Mark Twain which is you know it's not what you don't know that gets you in trouble it's what you know for certain that just ain't so so I would say that that should everybody should take that attitude towards real vision and and in general that it's about challenging your beliefs it's about hearing different perspectives and and nothing is definite but it's it's it's preventing you from making a bad bet more than it is handing you the good bets yes yes it's giving you the tools it's giving that it's yeah it's teaching how to fish so giving you fish she's teaching you how to fish exactly all right we're gonna get into this rapid-fire round so we got we got literally hundreds of questions so we're gonna go through as many of them as we can so rally I might cut you off if the answer gets a little long-winded but here we go let's do it so you've said we're following the same path as the 1929 collapse is that still your base case I'm not mirroring it a hundred percent I'm talking about in structure the liquidation phase the hope phase which is to bounce and then the insolvency phase I still think it's playing out I think it may be shorter the hope phase may be shorter I'm feeling that it's gonna stop by June which is more typical from the Nikkei 1990 the SP 2001 and the SP 2008 all had mmm March to June Hope phases it was only the 1930s that had a longer Hope phase which was October to May I think it was he finishes soon the hope face but still follows that whole overall path and if you remember past in the 1930s was the strong dollar and the dollar had to be devalued four years later by 40 percent yeah and when I think about a long Hope phase like that in 1929 I think you know the amount of time it took to get data we're getting data so much faster and it's so much more accurate so and if all those other crises you mentioned the data was much better than 1929 but one question which I am actually interested in myself silver when when do you go along silver and why how do you view silver some people look at as an industrial metal some people look at as a monetary metal it's it's really simple generally speaking in a monetary situation as now gold does well when you've got a recovery so you've got economic growth but we need either monetary or fiscal stimulus going on then silver does well because it's like a call option on the industrial cycle as well so it comes later normally so if you think about over the 2000 period gold hits low in in 1999 and then started rallying silver didn't start growing for four years later really they got trapped in this wedge pattern and then didn't go anywhere and then eventually broke in like 2003 so silver needs the magic of the industrial cycle and the precious metal cycle together gotcha so switching to a crypto what are your views on etherium versus Bitcoin and then I'll just add the caveat just in general non Bitcoin crypto currencies at the very simple level theorem is silver bitcoins gold so all of the applications really at the moment are happening on etherium so it's going to be driven by demand by the underlying adoption of the businesses that come I think that will happen it probably comes later and in which case there will be periods of time where theorem will kill out performance a Bitcoin and other times right now that I think Bitcoin rightfully is the king because it's currently it needs to be the reserve currency of the future meaning personal reserve comes you know you know not replacing the US dollar I don't believe in that I'm talking about it's a personal reserve currency that you you can use and I can use a lot easier than for example you can access gold gotcha so keeping it along currencies how will the the pound fare against other major currencies in this global downturn and then really more long-term how do you look at with brexit and and the reshaping that's going on in the UK how you look at the pound long term I think the pound goes to parity to the dollar I think the UK needs a weak currency for a period of time and you know and over that time they've got a load of trade deals to do I mean it's a long long path of grinding hell to get everything sorted out for the UK so this they need a weak currency in the interim while nothing is there so I'm no bull of the pound I don't think it's any worse will the euro underperform the pound possibly a bit no no bull of the pound on a relative basis necessarily what about what about retail we saw retail sales about sixteen point four percent in April do you think that this is a trend we're gonna see continue are there any major trends you think will be reshaped after this crisis so so retail thefts the year-on-year number was ten sixteen percent so this is it actually wasn't the iyanya numbers down 21% I think so I'm I look at things in the onea because this month on month becomes nonsense what we need to know is is retail sales going to get positive again which is normal world or not I don't think so I think it rebounds for negative twenty odd percent and pounds and rebounds to negative five which is exactly what I've been talking about it's that subdued year-on-year rate of growth that is recessionary we've had the shock and awe and we might have I think most people have been buying stuff anyway online so I think the yes we'll get some retailers will see some pickup in stuff but it won't last longer than a month because you know yeah sure you need to buy fit kids some new toys and only that particular story was it sells them whatever but after that I don't think so now I know you've been playing close attention to Brazil where do you think Brazil is heading with this crisis is there any hope no I will keep it short and sweet what about the strong dollar if your retail investor what's the best way to to take advantage of that I'm not a big fan of ETFs and you know blah blah blah but the only one easy way is the UUP ETF and stuff like that that are basically that DXY dollar index but for that trait work you really need the Euro to weaken for the Euro to weaken it has to break this trendline that keeps bouncing off which is this wedge formation and it's basically 102 775 breaks that the euros going down so 105 parity and then below so you pee but it's there's no leverage in that so you know they make a lot of money currencies most people trade currencies leverage and futures are the way for that okay and then let's see here in the past when we've had you know massive crises like this war has been a risk we haven't had really a major war in the world in a very long time what do you think about the potential for something like that coming coming to fruition well listen there is a definite increase in sabre-rattling between the US and China now it's unlikely to be a kinetic war but it's we've got trade war already and we probably got a technology war and we probably got any kind of military weaponry war going on and we've probably got a cyber war going on so to all extents and purposes but probably be partially at war already and I think that that could ratchet up do we end up fighting kinetic proxy wars elsewhere quite possible I don't know I really don't know and I'm not a big fan of geopolitics because it's also unknowable there's kind of no business cycle or rules that lend on it's all like guesswork and I spoke to my friend in Uganda and he thinks that bla bla bla and the chance you know it's all hearsay so I'm not one for that okay so what about if you had to pick one emerging market currency that you would say don't touch it with a ten-foot pole what currency would that be the Chinese RMB can we get a little bit on that one you know it with it being pseudo pegged it pseudo pegs it's according paid but you can't ratchet up a trade war they just ratcheted up the highway war with the technophobe new technology there is an ongoing battle it's pegged also not it's the dollar but to the euro and a bunch of other currencies which are all likely to weaken and I think they also the Chinese have an enormous amount Chinese corporations have enormous amounts of u.s. dollar debts and one of the ways of helping themselves out is devaluing currency okay so final question from the audience is what's your take on US asset prices in the near to medium future you kind of gave a long-term view with your e/m answer that you think there will be some EML performance and you know 10 to 15 years but what about near to medium-term is this u.s. out performance story's still intact yes I don't think that's going away I think the u.s. our performance story works I think the stock market's probably trying to grind out the top here and we'll see a corrective phase and then we'll take a look at it the bond markets telling us it's kind of pin to yield lows that things are great and stock markets at the wrong price which I think we probably all know so and I think that commodities get some rebound as things reopen but I don't think there's enough demand for you know a strong rebound in in commodity so I think stuff like coppers priced in oils getting closer to where it needs to be and we'll probably trade off again after that okay well with that being said you know I just want to say thank you to you Rao and thank you to everybody for joining us it's an exciting time for us here at real vision and really across the entire global financial world you know thanks for taking the time and thank you again to all the way Thank You Maxim yeah anybody's watching this and you haven't signed up to rules and this is an extraordinary amount of content coming out of the next four weeks not not even just next week of this campaign we've got some some kind of ludicrously amazing people coming up and some incredible themes that we keep exploring ongoing you know real vision we have the set of themes that we look at and we bring on that narrative forward so we've been very very much ahead of most things that we see in front of us today and hopefully by bringing the smartest people in the world onto real vision continue to do that and I'll add that you can give it a try for a dollar so you don't have any excuses as to why you're not signing up if you're here listening to RAL today you know just give it a shot give it a shot good sales skills yeah I have to but all right guys well good talking to you I'll just...
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