Pal: Thinking Ahead is Where You Make All the Money

Your Real Vision Daily Briefing for May 1, 2020

Ash Bennington and Raoul Pal explore how to find the macro signal amid the noise of economic indicators, alternative data, & confounding price action.

  • As dismal economic data and volatility in markets continue, it can be difficult to find the macro signal amid the noise of economic indicators.
  • Raoul Pal is considering unemployment numbers, historical market correction patterns, investor psychology, and even real-time global traffic patterns for clues about where we’re headed.
  • Amid the economic carnage, Amazon is uniquely poised to take over the world’s retailing and outperform tech rivals like Google and Facebook that are dependent on ad revenue for survival.

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The world’s economic outlook is dependent on dozens of intersecting forces like US-China relations, corporate bankruptcies, European deficits, trade and currency markets, and dollar demand, but looking forward and tuning out the day-to-day noise is how investors can make money during this time, Raoul Pal said during today’s Real Vision Daily Briefing.

Pal said that he’s watching China as Trump ratchets up tensions with talk of tariffs and scapegoating. With the CNH weakening significantly, he said we could be in for a huge move, which could have major impacts on currency markets and the dollar.

He’s also looking at deficits in European countries as a percentage of GDP, which is about 20% per country, and considering the recent head and shoulders pattern on the IBEX, Pal said something really big may be about to happen there.

Pal also discussed how the market is pricing the growing unemployment numbers and disagreed with the sentiment that these jobs not truly lost, just in a deep freeze. 

“I don’t see a world where there is enough cash flow to rehire everyone again and presume everything is ok, and that is what the market is trying to price in right now and I just think it is wrong,” he said. “We need to figure out how many jobs are really lost – that’s the kind of understanding that’s going to make us money out of this.”

To get a better sense of how things are playing out on the ground in various countries, Pal said he’s looking at GPS data on traffic patterns in locations like Atlanta and Singapore to glean insights into behavioral changes that are persisting despite lockdowns expiring. He noted that even in places that have reopened, traffic during the middle of the day is nearly nonexistent, and discussed the implications of that.

“There’s no way consumption is coming back in the way people think,” he said. “When you look at cities that have shut down and reopened there’s an enormous hole. Reopening is a mirage.”

Finally, Pal touched on Amazon’s announcement that it plans to reinvest its entire $4 billion of Q2 profit into its supply chains and said that the company is positioning itself to take over the world’s retailing. With ad revenues expected to fall 50-70%, tech rivals like Google and Facebook have no hope of competing, he said.