Comments
Transcript
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DBI'm from Boston and I never wanted a New Yorker near me to begin with obviously!!!
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SKWill the bond market always be right now that the Fed is controlling the narrative?
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BMReally enjoyed the conversation. However, you talk about "distrust of nations, trade tariffs and tribalism"...you are really dealing with the heart of the issue.
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CPRaoul you're the fucking man thanks for everything
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GRPROBLEM: the audio is MONO and only on the RIGHT CHANNEL/SIDE
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AOWhen can we get the transcript of the briefing?
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IPto Ed Harrison: Hello, I was wondering if you could listen to this podcast which is very very contrarian and maybe comment in one of the next daily briefings? I would like to hear your thoughts https://moneyweek.com/economy/global-economy/601132/brian-pellegrini-this-crisis-may-not-turn-out-as-badly-as-everyone
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GCRaoul and team, your guidance continues to be invaluable. Appreciate all the insight in such uncertain times. Oh and btw I have been converted into a Bitcoin lover. Many thanks for everything!
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JRGreat how they emphasised the difference between an IS and a SHOULD BE perspective. So true. Not just applicable to investing but life in general!
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JCRaoul is so right..want to short a bear market? Put your trades on, buy a straightjacket and channel your inner Marc Cohodes.
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DMRaoul will be right at times and wrong at times, but what I personally appreciate most is the intellectual integrity he brings to the investment decision-making process. I'm looking for trades like anyone, but the value of this subscription, for me at least, is in learning _how to think_ about investing. I think Raoul's an exceptional guide, not in spite of the constant struggle with doubt ("Am I right?!"), but exactly because of it. Now give me my five bucks, Raoul. But seriously ... great conversation.
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DMOutstanding conversation.
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CSToday isn't Easter..Easter is on Sunday
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IPhello, has anyone noticed that bitcoin and USDCNY are almost perfectly correlated? there is a 50 day lag between BTC and USDCNY
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TPNice one Raoul and Ash. I don't see how the USA can maintain this shutdown for much longer. You're talking about most people living paycheck-to-paycheck, around 75% - 80%. Many can't weather an emergency expense of $400 - $1000. The direct helicopter drop of money isn't enough. Its a bandaid on a leaking dam. The demand for money to survive this is seen in the deliquency of credit, 30% of renters not paying their landlords and the larger companies refusing to pay rent to commercial mortgage lenders. The models may want us to keep shut past June, but I don't think people can take it. I'd guess there would be severe social chaos if this situation is prolonged. The sensible view would be, emphasize testing, isolate from critical people, but the rest of the economy has to restart or we may miss the chance to recover what is left.
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SSI found this better than the Ask me Anything. I think it may be because Ash is a more experienced interviewer than Max who is still learning the ropes. But Max has a great attitude and great potential so will improve over time with experience.
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SCthanks for being so humble and admitting you don't know what is happening.
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OCcaptions, please. Thank you very much!
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JSRaoul you're the man. For all the Real Vision viewers on here can we start a grass roots 'help your local restaurateur'? For example, I simply ordered from my local deli guy and tipped him very generously. He nearly buckled with the relief of cash coming into his coffer if only for a day. People, it's time to help your fellow man the way Raoul helped us.
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PAGreat viewing, Watched this three times. Thanks guys!
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SMI love Daily Briefing. I think Daily Briefing is the best program RV has. Timely update and great information.
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jsRaoul's beginning to crack up all by himself on that island. Somewhere in that bachelor pad there's a closet full of Wilson volleyballs with faces painted on them....
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jHLove the daily and timely analysis during this crazy time. I do believe most people are way too optimistic about this virus. I trust Bill Gate he says we won’t be back to normal till 2021. Of course he did says there are some best case scenario but it highly unlikely.
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MTGood stuff. Really like this daily segment.
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MRGreat session. Would love to hear Raoul and Mark Yusko talk more about the Fourth Turning. Happy Easter!
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wjSo it will get worse for Europe. Looks to me that what was disccused here at the end was Peter Zeihan predictions. If we go a step further we will see an energi shortage in Europe next. I am amazed by the speed the "green energy" is changing. In Sweden there is a discussion about small new clear reactors powering the cities. In Denmark the Danish queen mentioned that its not entirely proven that climate change is only man made and people should stop to panic! As I said before Europe either builds reactors or we all go back to coal!
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TMRead a book and get off Twitter for the holiday weekend. Great advise.
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KBTo be fair, humans have always been dangerous.
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TWThe societal implications of approaching an all time equity high, during lockdown, would be enormous! The strategy of the last 40 years has been to drop interest rates in every crisis, saving irresponsible borrowers, paid for by responsible savers. Mortgage holders bailed out by renters. Now we are at the point where you have a class of; young, educated, entrepreneurially minded, gig-economy, renters, stuck in property they can no longer afford and their savings don't even bare any interest: living under a system with a ceiling above them. These are the filmmakers, the writers, social organisers, app developers etc. (In the UK already agitated by Brexit). Put aside the last fourth turning because it confuses people more than it helps; this is every other one before that. Politicians and Central Bankers need to focus really hard on what 'stability' is. The John Law School of economics does not work. You can do double or nothing every time you get to a crisis but the ending is always the same.
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UJNext flu season will people panic? I think people don't understand how big cryptos will be. Like SWIFT and blockchain. https://create.smartcontract.com/sibos17........... great as always
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AKExcellent, as an amateur I like the simple explanations. Going short in short term seems dumb, but longer term short would be wiser?
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ycThese daily briefings have become something I can’t go without. Thank you. Look forward to more about your thoughts on yields going negative this next phase, Raoul. To everyone a great weekend and be safe.
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JHGreat discussion. Gives me hope on navigating an extremely difficult time.
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RCGood to hear you both! Have a good WE. I think my main take away its not over in 2 months and everything back to normal. This is not a short term volatility event.
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JACoconuts and fish actually sound pretty good.
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ASHmmm... is reshoring HYG at these levels a an option?
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PDEnough about a "Fourth Turning." What we are in is a Kondratieff Winter. This isn't just about crediting the author of an idea. There is a subtle, but important distinction: because any turning won't occur nor settle until the winter is over.
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KJThank you for sharing the story about your friend who lost 30% on shorts in the bear market, Raoul. Makes me feel a lot better about my own shorts right now...
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TSExcellent as usual. Raoul is awesome.
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PBBest not to play right now...Real Economy is already exposing the Cracks and the Serpent is about to eat it's own Tail
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BBRaoul - since you look at EW for trading I suggest you extend (if you haven't) to Socionomics to look at the social; transitions. I'd be happy to chat with you about that.
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ADThank you for taking the time, on Good Friday to give us some amazing insight. Crusaders is not a great enough word for the people you are. Have a great weekend.
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TPGo read a book. Great advice.
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RCGreat video gents. Ash raised important point about heightened Fed involvement. Do you have update on playbook given Fed's moving goalposts and buying high yield? Several recent RV videos said Fed couldn't/wouldn't buy junk, and now they're buying junk. Would love to hear your comments.
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AKVery high quality conversation here, thank you!
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WZ"The market don't care" Best takeaway
JACK FARLEY: Welcome to the Real Vision Daily Briefing, where our team of journalists analyze the most important news of the day through the framework of key Real Vision themes. Whether that's macro, liquidity, market structure, or crypto, we cover it all.
Hi. I'm Jack Farley with Real Vision. We have our CEO, Raoul Pal, standing by with Ash Bennington, and they're ready to give their macro analysis of what's going on. But before we go to them, let's quickly go over the latest news and data on the coronavirus pandemic, as well as markets.
It's 3:30 PM, Friday, April 10. Today, the global death toll surpassed 100,000. Yesterday was the third day in a row that the world saw over 85,000 new cases. In Europe, we're seeing the five-day moving average of new cases leveling off, suggesting that we could be close to a peak.
While in the US, COVID continues to spread. 44 states now have more than 500 confirmed cases. And in 11 of these states, there were over 1,000 new cases just yesterday. And if New York were a country, the state would have the sixth highest death count of any country in the world. But perhaps the most ominous news of the day is a leaked memo from the Department of Homeland Security that projects a truly nightmarish scenario.
Obtained by The New York Times, this internal document models the damage if the quarantine in the US were to end immediately. The models found that a complete end to the shutdown would lead to around 125 million cases and up to 300,000 deaths. Perhaps more alarmingly, it found that ending the shelter-in-place quarantine in 30 days could lead to as many as 105 million cases, and that's if moderate mitigation methods were still in place.
In markets, it's Easter today, so I don't have a lot of price action for you. But there were some important stories I want to briefly go over before I turn it over to Raoul and Ash. Today, the credit downgrades continued, this time in the airline sector, with Delta, American Airlines, Southwest, United Airlines Holdings all getting significant downgrades by Fitch today. And with Delta being downgraded to BB, Delta is officially junk.
In other news, Warren Buffett's Berkshire Hathaway tapped the international bond market yesterday, borrowing 195.5 billion yen or $1.8 billion. The yen-dollar dynamics is fascinating. If you want to learn more about that, you should check out Raoul's interview with James Aitken today, where James goes over that dollar-yen trade as well as the cross-currency basis swap that underlines it. It really is a fascinating interview.
Lastly, over the past three weeks, at least 16.7 million Americans have lost their jobs. Meanwhile, this week saw the greatest stock market rally since 1974. To make sense of all this chaos, we've got Raoul Pal and Ash Bennington.
ASH BENNINGTON: Welcome to the Real Vision Daily Briefing. I'm Ash Bennington. It's Friday, April 10. I'm here with Real Vision CEO and co-founder, Raoul Pal. Welcome, Raoul.
RAOUL PAL: Thank you, Ash. Good to be here with you.
ASH BENNINGTON: So here we are, Raoul. It's Good Friday. Markets in Europe and in the United States are closed in observation of Easter. Tell me, when you look broadly at markets, when you think about what's happened over the last few weeks, you've just come out with an important piece on Real Vision called The Unfolding where you unpack just your broad big picture view of all of the things that are happening right now with coronavirus with the macroeconomic framework and with markets. So share with our viewers what you're seeing in the broadest sense.
RAOUL PAL: So I'll try and distill it down. So basically everyone's seen the video. So the basic idea is, I think the potential is three phases-- the liquidation phase, the hope phase, and then the insolvency phase. The further along we go, the harder it is to project or forecast.
So the liquidity phase, the question is, all anybody needs to know now is, where are we? Are we still in the liquidation phase or have we finished it and are we in the hope phase? That's the debate the market's having. But it's actually relatively simple to me, and I think Roger's talked about this in the past is, we're at the 50% retracement of the entire Dow move.
I have a bunch of technical indicators in the shorter term that are diverging, suggesting it could rollover. Bitcoin has actually led a lot of this, seems to have rolled over today, while the S&P is closed. I seem to think that the narrative has been the Fed helping, things are getting better in New York, things are getting better in Spain and Italy.
Meanwhile, there's a sub-narrative just developing that I think is going to grip the markets over the next three weeks. One is Japan is seeing some acceleration. Singapore has seen new clusters and a growth in cases and has closed the economy down again. We've also seen somewhat similar of a second wave in Vietnam.
Then, when you look at-- Spain is struggling to try and decide whether to reopen or not. And again, it's probably too early to do it considering how many people have been infected in Spain and how many people had therefore become infected. Sweden is accelerating, Brazil is accelerating. These were economies that were less closed.
ASH BENNINGTON: Yes.
RAOUL PAL: Then, other states in the United States, there's about 44 states now that have over 1,000 cases. Now usually that's an accelerator, and we have to see how that plays out. They won't all be uniform, but my fear is the narrative is going to shift quite quickly to, this is not over, there's a second wave elsewhere, and so we finish the liquidation phase over the next three weeks. I could be wrong. It's a really difficult phase to trade.
ASH BENNINGTON: Yeah, it's a very scary progress progression that you're describing here, effectively, from illiquidity to insolvency.
RAOUL PAL: And I just did an Ask Me Anything on Real Vision Pro just to describe at the simplest level for people to understand. You're a restaurant. So restaurants in China reopened. And they asked for social distancing, which meant basically 2/3 less tables and a maximum of three people per table. The restaurant business is a small margin business. To remain open in a situation like that, for a restaurant, is basically a grind to bankruptcy because you've lost 2/3 of your revenue or more.
So H&M opened in China. We must get our shops open. Down 50%. There's a recent report out of a retail analyst who's basically saying, retail, particularly the specialist retailers who have the lower end of the market, it's better for them to remain shut than reopen. Because the moment they reopen, they can't negotiate rents and everything else and have to pay staff, and before you know it, they're bankrupt.
And that is the issue, is the incremental loss of growth doesn't generate enough cash flow to pay for debt. And that's it. And it's the same whether it's student loans, the same whether it's auto loans. And all the government's trying to do is backstop that for a period of time, three months. No mortgage payments for three months. Well there's a big, bloody assumption I keep telling people in that, that three months is, after that, it's all OK. It's not.
ASH BENNINGTON: Absolutely. I think you've hit on what I think is the critical point, which is the disconnect between the real economy and financial markets that we're seeing right now. I'm here on the Upper East Side in New York City, and you walk around and you see what is nothing short of absolute real economic carnage. Right? You see stores that are boarded up, literally in some cases. You see signs on the window, people saying, we love our customers. Please help us out. We've set up a GoFundMe site. This is the real economy.
And then you look at what's happening in financial markets-- I'm looking at some numbers from US equity markets. The S&P closed on Thursday now for the week, and it's up 12.1% since last Friday's close. S&P from total all-time high, which was February 19, is only off 17.6%. It's really--
RAOUL PAL: But bear markets are a bitch. They're always so hard. I never forget running a hedge fund in 2001 and realizing that in a big bear market, the market went up more days than it went down by a factor of 2.
ASH BENNINGTON: That's right.
RAOUL PAL: So it is so extraordinarily hard to trade bear markets.
ASH BENNINGTON: Right.
RAOUL PAL: And so a retracement of 50%, it's not uncommon. And so everyone's like, I don't understand it. But the problem is, is everyone's fueling it by trying to short it and then covering it. And that's really what's going on. It's everyone's going, this is madness, but they're all the same people who are buying back the shorts.
So that's what's complicated about bear markets. They're really, really difficult to trade. And particularly in-- I mean, I use a bit technical analysis in the Elliott Wave terms, this wave 4, wave 5 transition is super hard because you kind of never know whether the bottom's in or not for a period of time. So I don't think it is, and that's been my base case, but you just don't know. So you're just wracked with fear of, am I wrong, am I right, am I wrong, am I right, all day, all night.
ASH BENNINGTON: That's such an important point for people who may be relatively new to markets that have only been here for the ride up. The ability to describe what happens in bear markets and the unusual dynamics and the unusual properties and the difficulty that they present to trade is such an important point.
RAOUL PAL: Yeah, I mean one of the features of a bear market is how fast it rises. It actually rises often faster than it goes down. Some of the biggest days are often on the up days, and that makes it very hard. Shorting, it's not the same as buying a bull market, shorting a bear market. They're not inverse.
Don't forget why macro people love bear markets and the tops of cycles is because normally the bull market plays out over, let's say, eight years. So it's an eight-year return stream. All the returns in a bear market tend to come in 18 to 24 months. So you can make extraordinary returns.
But within that comes the volatility. A bull market is almost defined by low volatility, and a bear market is defined by really high volatility. So it makes it really hard. I had a really good friend of mine who, over the 2000 period, was very bearish, was short most of the time, but short-term time horizon. He lost 30% by being short in a bear market. It's because you get stopped out every time the market rallies, and it's really hard.
ASH BENNINGTON: Right. Those positioning dynamics are crucial, and the margin calls of liquidations that occur really change the dynamics and make them not a mirror image, not a flipped version of it. And the time frames get compressed dramatically.
RAOUL PAL: Yeah. So one of the things that I'm looking for now is I'm eyeing the bond market that looks like yields on a fall again. And I'm starting to build a thesis that, in the optimism phase that I think comes, whatever form that that takes, whether it's a three-month, one-month, six-month-- whatever it looks like rally, a stabilization-- is I have a feeling the bond market is going to go to negative yields.
And we'll hear a narrative of, this is wrong, it's a technical thing, it's nothing to do with this, blah, blah, blah, like we heard about the inverted yield curve, which ended up working every time, right? So I think we will see the bond market go negative in the US, which will be the bonds telling us insolvency is the big risk, the debt deflation. People are not going to want to believe it. So I was thinking, how do I know, in that hope phase, where the underlying reality has changed. And I think the bond market will be the answer because the bond market is almost always right.
ASH BENNINGTON: It has a much better predictive record, certainly, than US equities.
RAOUL PAL: Yes, because equities are based on earnings and emotion and blah, blah, blah. Well bonds are basically GDP plus inflation.
ASH BENNINGTON: Right.
RAOUL PAL: Bond yields are a function of GDP and inflation, really.
ASH BENNINGTON: The other big news story that's come out since we last had you on was the Fed effectively announced yesterday that they were going to be buying junk. I mean, the language that they used, it's like Oracle of Delphi kind of stuff, right? By expanding the size and scope of primary and secondary market corporate credit facilities, they're buying junk.
RAOUL PAL: So what is happening here is-- look, we talked about this in the doom loop when I talked about it is, as soon as things get downgraded, the junk bond market cannot absorb it. So the Fed aren't trying to-- I don't think they're trying to stop price discovery. They're trying to stop an obliteration of the junk bond market or it freezes. So I think that's what they're trying to do, because they won't buy every single junk bond from Ford, for example. They'll just try and smooth the market, which is what the ECB have done, but probably more aggressively so.
The question is, is what happens if Ford goes bankrupt. Then it's