Pal: We Have A Really Big Long-Term Problem

Your Real Vision Daily Briefing for October 2, 2020

Real Vision CEO and co-founder, Raoul Pal, joins senior editor, Ash Bennington, to interpret the latest financial newsflow.

  • As uncertainty increases and volatility continues to rise, a top may be forming in U.S. equities.
  • Copper rolling over, the dollar stabilizing, and bonds staying flat are all reinforcing the narrative that growth is slowing.
  • It appears to be all headwinds for the energy sector; we could see some cyclical bounces, but the world may have moved on.

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U.S. equities could be in a topping pattern, Real Vision CEO Raoul Pal told Ash Bennington during today’s Daily Briefing.

Pal said we don’t know if it is a meaningful top yet, but he is watching for a GMI crash pattern where the market falls sharply, retraces 50%, then gradually rolls over and takes out the previous low. He said we could be building that pattern in the S&P and the NASDAQ or the NASDAQ could be forming a head and shoulders top. Either way, Pal believes it feels like we’re searching for a top.

Pal also said he is keeping an eye on weakness in banks, heavily indebted BBB companies not trading well, and the collapse of oil demand over the past week. He believes that people are still in the hope phase of the recovery where they think COVID is a short-term problem, but it is time for the hope narrative to go away because the reality is that we have a really big long-term problem.

With the virus again on the rise, people need to understand that the human behavior changes that result from it are going to have real economic effects. Pal pointed out the Baby Boomers are both the population most at risk and the generation with the most spending power, so when they restrict themselves from normal activity, it is going to have an impact.

Other indicators of trouble that Pal mentioned were copper rolling over, the dollar stabilizing, and bonds staying flat. He said that bonds read the economy better than anyone else and this tells you the economy is not recovering. A lot is going on, but it is all feeding into one narrative: the slowing of growth, he said.

On the crypto side, Pal shared his thoughts on the criminal charges brought against BitMEX, saying that the most interesting thing about the news was that it didn’t cause a crash. He believes the U.S. is simply making an example of them and after a slap on the wrist, they will be free to operate. It is interesting to see the space grow up; it is a good thing because we live in a world of governments and crypto needs to exist within that, he said.

Pal wrapped up the discussion with his feelings about the energy sector. Pal shared that he has been structurally bearish on energy stocks for a few years now and thinks we are in a secular downcycle in energy. With people moving toward green investment, especially in Europe, Pal anticipates more regulation in the energy market and fines for energy companies in the future.

Pal sad it looks like all headwinds for the energy sector. We could get cyclical bounces, but the world may have changed, he said.

RELATED CATEGORIES: Crypto, Daily Briefing, Market Analysis