Pal: Nobody is Pricing the Tail

Your Real Vision Daily Briefing for April 3, 2020

Raoul Pal & Ed Harrison discuss the astonishing unemployment stats & the dollar rally amid the ongoing liquidity crises roiling in asset markets.

  • Markets had no reaction to the newly released jobless numbers despite the bleak picture they paint, suggesting that they aren’t moving on economic fundamentals because nobody can price it.
  • The destruction of global supply and demand could have long-term existential effects on supply chains, triggering a shift from globalization to regionalization, particularly in Europe.
  • The “doom loop” of dollar liquidity continues to be the biggest risk of them all.

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March jobless numbers far outpaced expectations and yet markets showed little movement, which Real Vision Co-Founder and CEO Raoul Pal attributes to the market catching up to the economic narrative that everything is bad but won’t stay that way forever, he said during today’s Real Vision Daily Briefing. 

Pal said people expect dismal numbers, but real panic and selloffs will happen if events upset this narrative, such as a resurgence of the virus in countries where it has appeared to taper off or a significant spike in second-tier U.S. cities.

“All economic data is now worthless,” he said, as the huge rolling destruction of global supply and demand plays out.

Pal also thinks the disruption of supply chains may wind up triggering a shift away from globalization as countries need to regionalize supply chains to meet demand. This is particularly true of Europe, which could either be destroyed or forced into full fiscal union by the effects of the crisis.

Meanwhile, the dollar liquidity crisis continues to mount. The dollar was so weak for so long that corporations borrowed in dollars to take advantage of low interest rates. Now, there aren’t enough dollars to go around, resulting in a game of musical chairs that only drives demand higher.

Overall, Pal seemed to think that markets have a long way to go before they accurately reflect reality.

“Nobody’s pricing the tail: credit, equity, the dollar – and the dollar is the most dangerous of all,” he said.