The Unintended Consequences

Published on: August 12th, 2019

Raoul is starting to get very, very concerned.


  • MS
    Mark S.
    14 August 2019 @ 17:21
    Hey Raoul do you plan to sell some ED when the first cut is made and then scale back in on a correction even if a cut comes before the Sept meeting?
    • RP
      Raoul P. | Founder
      15 August 2019 @ 18:53
      Don’t know yet
  • J
    JP .
    12 August 2019 @ 19:09
    Any comments on safety of capital (UBS Switzerland) under worst case scenario painted by Raoul?
    • MM
      Mirco M.
      12 August 2019 @ 19:46
      Also interested into this. Major Swiss banks are outside EU so what’s the impact on them? Are they going to bail-in deposits in USD/EUR and other currencies but not CHF? Any difference between UBS/Credit Suisse and the local cantonal ones?
    • DN
      David N.
      13 August 2019 @ 01:11
      Agreed - please share your thoughts.
    • J
      JP .
      14 August 2019 @ 12:57
      Hi, any feedback on this?
    • MM
      Mirco M.
      15 August 2019 @ 11:18
      I have been researching this and stumbled upon something interesting called “SNB Financial Stability Report 2019”. If you Google it there are few info’s (and similar scenarios they explain/play out similarly to Raoul). Neat resource, it looks like CS/UBS are both 135% exposed in comparison to Swiss GDP, and the situation looks a bit better for cantonal ones. Also run some searches in terms of “BRRD UBS” and it looks to appear only on papers concerning international branches (Frankfurt, Luxembourg?, London) but not sure what could be the impact on Swiss branches and deposits as they seem regulated by SNB so their law seems to apply (which I’m not expert on it either, maybe they also have a bail-in mechanism but seems less likely or less aggressive than EU). Would love if somebody with better info could jump in. Looks like the best move might be moving the assets to a cantonal banks, and keeping only USD/CHF there.
    • J
      JP .
      15 August 2019 @ 14:55
      Cantonal banks normally only onboard Swiss domiciled clients and therefore do not have international clients.
  • MM
    Mirco M.
    12 August 2019 @ 19:44
    Raoul - is it better to long gold in psychical form or through contracts? I can see the owning the real thing VS leverage, easiness to enter in/out/manage in general but I can’t assess the macro risks of all. What are the potential advantages and differences in these cases? Can you please expand on this?
    • DB
      Daniel B.
      14 August 2019 @ 10:30
      On the chance Raoul's enjoying his holiday on the beach with a drink (or three) - if you've got access to RVTV there's very good a interview with Simon Mikhailovic by Grant, and Grant's Gold documentary (which I think is on YouTube free now). In short; there's very much the case for holding physical gold in the situation where inflation is rife and cash hoarding is outlawed, but you need to hold coins (in silver and gold) so you can spend them or trade them for items - holding physical bars just won't work in the same case (nobody will give you change for a 20oz brick). Given the higher likelihood of deflation first, paper gold will likely trade fine until MMT starts in earnest and then you need to look to trade in your paper holdings for physical assets - but that's a nightmare scenario with larger implications. Anybody with greater knowledge or experience feel free to add or correct any misunderstandings
    • CS
      C S.
      14 August 2019 @ 14:47
      There will not be physical to buy when you finally believe it advantages you to do so. Buy some physical early.
  • MC
    Mathieu C.
    12 August 2019 @ 18:01
    Sounds all rational but for some reasons I am rather optimistic in the sense it might not be as bad and hopefully might not endanger the secular bull market we are still having. This could be a simple pause. I see major risks in your scenario: 1) The whole world is buying bonds for capital appreciation and not for yield. We all know well how that kind of behaviour terminates. A bond crash could be a good opportunity for central banks to collect the debt further without distorting the system. 2) EU banks are just badly shorted indeed, despite all negative news, they make money and are restructuring hard. Hopefully ECB is going to do something about it but now sellers are pushing on the string. It could well be a false break out. Option interests and everybody are all but massively short. Again one crowded trade with no much valuation fundamental, usually don't end too well. 3) Germany has a lot of room to fiscally spend and are making money to do so, however Merkel appears quite sick and the next election is far. I think they are just waiting for the right time, potentially linked with their car industry. I cannot really explain why is it it makes me think it's just a slowdown, the main reason possibly is that everybody is so expecting a bad recession but when it's too much of anticipation rather than a surprise usually it doesn't happen (economic agents have a chance to behave way safer than they would have had otherwise; I think it is what you see in the economic data at the moment). Another strong reason which keeps me optimistic is that, I am a believer of an automobile boom hopefully in 2020 as a few popular (plug in hybrid) models are coming onto market, that might explain also the weak economic data at the moment as people might be confused onto to what is the future for cars, so they differ their purchase. The negative on that front is the US is losing this race also, so finger's cross they won't kill it.
    • JW
      Joel W.
      13 August 2019 @ 18:01
      Mathieu, I don’t agree with all the points you make but I really do appreciate your thoughtful commentary. It helps balance my perspective and open my mind to other possibilities.
  • PW
    Pete W.
    13 August 2019 @ 09:00
    At the risk of being called a pedant, below your commentary on German exports, you have use a graph titled ‘Germany Imports’, which is then replicated lower down when you actually are talking about German imports.
  • DB
    Daniel B.
    13 August 2019 @ 00:19
    Hi Raoul, Is the ED Dec-19 trade still good or should we move out to 20/21/22 dated contracts or 2 Year USTs (in case of funding issues)?
  • OS
    Oliver S.
    12 August 2019 @ 19:20
    Raoul: Thank you for the insight. As we know, Central Banks have been buying gold at a pretty hefty rate. Do you think this is an acknowledgement that the banking system, or in extremis, the fiat/MMT system is on a knife's edge? Do you see the major risk to buying gold is confiscation.....again?
    • MM
      Mirco M.
      12 August 2019 @ 19:45
      My questions are also on how to properly enter into gold. Buying an ETF from a bank doesn’t seem a good solution here. On the other hand the physical form seems very extreme too (and no leverage also)
    • MC
      Mathieu C.
      12 August 2019 @ 20:30
      You can open a position into futures comex, it is the best for retail you have micro gold MGC or GC. The margin is cheap, your money is not in a bank and I don't think the exchange would ever have problem to deliver despite what many says as sellers would be squeezed out and liquidated until the price has become so expensive that the guy with the physical gold will be picking up any contracts which can't find a home and make a lot of money. Anyway as a retail and on margin, you can't request for a delivery, so you will just try to roll your position which might prove however to be expensive in the end of the world scenario you seem to refer to but the price would have grown so much anyway for it to be a problem thus you will sell and enjoy your money.
  • EC
    Emily C.
    12 August 2019 @ 13:19
    Raoul- European banks recently did not renew the gold agreement. If there truly is some liquidity disaster, won’t central banks be forced to sell their reserves as in 2008? Gold shot up once QE began. Do you have any advice here? Are you also still long on Eurodollars? Do you recommend a higher strike price than 99?
    • RP
      Raoul P. | Founder
      12 August 2019 @ 17:35
      Gold is not the clear winner at the mid stage but bonds are winners for early stage and mid stage

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