ASH BENNINGTON: Welcome to the Real Vision Daily Briefing. It's Friday, April 29th, 2022. I'm Ash Bennington. Very excited today to be joined by our founder and CEO, Raoul Pal. But first, a look at US equity markets. Folks, frankly, it's been a bit of a bloodbath out there.
NASDAQ off over 4% on the day settling down here looks like 12,334 on the NASDAQ, S&P 500 also off more than 3.5% down to minus 3.63% closing out the day at 4131, Dow Jones Industrial Average off 2.75% or 2.77% I should say. Numbers are still bouncing around here a little bit at the close. The VIX rising 33.70. Raoul, not a pleasant day in US equity markets.
RAOUL PAL: No. And I've sent out a few warnings, I did that warning on Real Vision about this as well on the daily briefing last week saying, listen, this is an ugly market. What I think is going on here is there are two factors for the market to digest. One is inflation, and that created the market to set up in certain ways. Everyone's crowded into certain themes. Then growth starts evaporating. You can see all over the place, stuff like consumer discretionary stocks. You can see it in the forward-looking indicators.
And so, the market has to deal with inflation plus growth. And what those basically mean is everyone's hit the liquidate button. Everything's getting liquidated. This is the correlation of one style markets that I was warning about. And that hits everything from crypto to pretty much everything. And the thing that stands above all ends up being the dollar because that is the safe haven.
Dollar today's had a slightly different day. We've corrected some of the move, but we've seen some huge moves in the dollar. And I'm not sure it's entirely done yet. There is a massive liquidation going on as people struggle with their portfolios because basically, whatever position you've got, it's wrong. And that's the pain everyone's going to have to take for a while.
ASH BENNINGTON: DXY, 103.1 right now as we have this conversation. Raoul, you've been thinking, writing and talking about this for a long time, we've all been thinking about this at Real Vision. It ties into where we are actually going next week, Global Recession, Everyone Is Wrong. Precisely to your point about how everything feels wrong right now. That's the title of the series we have coming up next week. Big picture, 50,000-foot level, you started to touch on inflation and growth. Where are we right now?
RAOUL PAL: I think we're at an inflection point. And a lot of people don't agree with me. Once again, that's why I did the campaign. It's like, listen, this is a really complicated macro environment, but it's very macro, right? We need to know and understand from the best people in the world what the hell is going on, because my voice is just my voice.
My personal view is that we are doing the transition from inflation to growth, the next shoe to drop will be the inflation shoe. I think inflation and growth go lower. And we either head into recession, Europe looks like it's already in recession. China has been in essentially in recession for a while now. But maybe coming out the other side, early stage.
And the US forward-looking indicators suggest, look, it's not clear it's a recession. But it's clear that the ISM is certainly headed to 50 or maybe just below which is the ISM, the Intuit Supply Management survey, anything below 50 suggests that growth has stalled, anything below 47 usually gives the recession. We're getting in the phase where we're going to have a very slow patch, and there is no sign yet that that's turning around. It could accelerate lower.
Recession is potentially on the cards. It's certainly on the cards in Europe. And we need to figure out what does this even mean? What does it mean? I think the big thing it means is bond yields are coming lower, because the inflation narrative is about to change.
In the week two of the content campaign, we have interviewed-- so lucky to be in the position I'm in, to sit down with Pierre Andurand, the world's best oil trader, what's going on in the oil markets and Dwight Anderson, probably the world's most famous commodity trader, what's going on in the commodity markets. And their view is these kinds of prices will lead to demand destruction.
And I think that's what we're seeing. We're seeing commodities crowding out growth. And I'm also keeping an eye on crude oil to see how it trades. A lot of people have very bullish forecasts, but I'm worried that the demand situation is not quite as good. If crude oil does break this pattern to the downside, and it's far from be proven yet, then the inflation narrative would disappear very quickly because inflation expectations are basically driven by the oil price, bizarrely, as if that's not the only thing that drives inflation.
But that's what drives inflation expectations, that will change the narrative a lot and drive the panic into bonds. If you've got a falling equity market, falling growth, falling inflation, well, that drives everybody into the dollar and bonds. And as people know, I love the dollar and bonds generally as a trade. That's the most macro tradable.
ASH BENNINGTON: WTI has retreated about 1% on a price basis here on the day, trading now at 104.28. Brent actually up a little over 1.5% on the day, closing at looks like 109.40 on Brent, the global price for oil.
RAOUL PAL: Yeah, and for me, oil either needs to break above 110, which we try to-- and maybe even a bit higher than that. Or if it breaks below 95, then I think it accelerates lower. We're in a tight range, its tenterhooks which way it goes. If oil breaks higher, it's only going to increase the demand destruction, and the squeeze on corporate balance sheets and the squeeze on households. It's not a good setup here either way.
We've either done the damage already, or we're going to do some more damage. These are very important markets, and this is a very macro environment. And it's very, very important to understand what it is. Now, if I'm right, and that the inflation story is going to change and growth is going to go slower, then we start shifting into a dynamic where we question what the central bank's going to be doing.
And if bond yields are going to come lower, stuff that's been really beaten up like the further end of the growthy stocks, they should be more interesting in that environment because they got killed by inflation. I think gold does pretty well. It's interesting enough, gold and growth stocks tend to do badly as real rates start tightening, but they got to zero and it looks like the world's falling apart, just as the central bank are trying to undertake quantitative tightening, or at least no QE.
And if that's the case, then real rates are going negative again if I'm right, and that's usually good for gold, crypto, long end of growth, that kind of stuff, and bad for everything that people have been in like commodity stocks.
ASH BENNINGTON: Yeah. Raoul, one of the helpful things that you do is to look and think across multiple time horizons at the same time. I'm looking right now at US equity prices across different time horizons. We're now off more than 20% on NASDAQ Composite, and NASDAQ 100 year to date. We've got off 15% on the day, almost 14.5 %, looks like on Amazon today. And Ark now off more than 50% year to date.
RAOUL PAL: That's right. And Ark, the story is well told is to do with that long end of the growth market. That gets killed in an inflationary environment. And you can argue whether Cathie, who I had coffee with yesterday, actually whether she's got the right stocks in our portfolio or not, fine. But then the Scottish Mortgage Trust have an excellent track record of doing this as well, the long end of growth, they're down, let's have a look where Scottish Mortgage Trust is down this year.
They're down 32%. You can see there's a lot of damage in that. Amazon is a really interesting story. People aren't paying attention. Amazon, the world's largest retailer is saying they're overstaffed. They said in their statement they're overstaffed, and the year-on-year comparison suggests it's a strong year last year because of COVID, it's going to make them look bad.
But the overstaffing element makes me think that there's layoffs to come. And as I think there's broader layoffs to come because of this falling consumption, because if you think about it, last year, particularly in these kinds of stocks, there was enormous amount of staffing to deal with the excess demand. Well, the excess demand is now gone. And therefore, you're likely to see, they're going to have to trim some of the staff.
This is not a good setup. But in terms of equity markets, the average recession and this doesn't feel like it's a financial crisis in the brewing, it feels like-- I've been talking about it for a while, but the business cycle is going to get shorter and slightly more violent, as opposed to the long moderation period we've gone through since 1987 or so.
If that's the case, then it could be a shorter sharper event and the average recession in that sees the equity market down between 20% and 30%. I think we're getting closer to the bottom than the top, but who knows? Only time will tell. Maybe things develop, they get uglier.
ASH BENNINGTON: One of the other interesting things that I know you look at in more detail than most is the real economy, the business cycle, some of the measures and metrics that you look at to determine things like shipping, pricing data. What are you seeing there in terms of the real economy?
RAOUL PAL: The real economy seems to have slowed really fast. Because what's happened is everybody built inventories because of supply backlogs. It's the right thing to do. Supply backlogs clear, demand falls because of high commodity prices and inflation, everyone's stuck with a whole bunch of inventories that needs to be liquidated. That's not good.
And we're seeing the supply backlogs clear, because the Port of Long Beach in the US is much clearer now. We're seeing the same with freight traffic, it's gone negative year on year suggesting that the economy may slow significantly forward. Those indicators, restaurants been weak. The consumers offset some of this by credit. We've seen them drawing down their savings. The savings ratio has been collapsing.
But consumer credit has held up and that's what traditionally happens in the US, they balance off savings and credit. But if people start losing jobs, then all bets are off. Again, I don't think there's anything really severe on the horizon. But let's keep an eye on it.
Europe, different story here. Europe's between a rock and a hard place. Because of the reliance on Russian commodities, particularly on gas, and Europe's in the transition to ESG. That transition is going to take the best part of a decade before it really starts taking marginal demand away from fossil fuels. And they're steadfastly wanting to adhere to that. And I think it's the right thing to do, but they're going to have to take pain in the middle, and the pain is the economy.
And what's happening is the outlet valve for that right now is the euro, which has been going down fast. We've seen the outlet valve in Japan being the yen going down fast, and we start to see the outlet valve in China being the RMB going down. Now, that's actually good. The rising dollar is bad in the short term because it creates funding problems. And it can slow growth significantly.
But if these economies see cheaper currencies over time, it's going to create a larger deflationary wave because they're all exporting nations. There's the bad of the strong dollar and the good of the strong dollar all at play. But that's a phase thing. First, the dollar up fast is a bad thing, then a weak set of global currencies helps them get traction recover.
ASH BENNINGTON: Raoul, we've talked about a lot of datapoints here. But I want to point this out because it's a pretty striking coincidence. Here we are on a Friday afternoon markets, NASDAQ, specifically losing over 4%. And on Monday, we start this Global Recession Watch series. What was it that clued you in to know? These series take weeks and months to plan, how did you see this narrative starting to build?
RAOUL PAL: I could see it in the economic data, I could see it in the positioning in the markets, I could see it in how things were trading, things like consumer discretionary versus consumer cyclicals, that kind of stuff. I could see it written large that we're going to get a slowdown. That's why I thought, okay, this is starting to get concerning.
Now, I've been looking at this narrative developing for nine months. Economists take a long time, there's only nine datapoints of monthly economic data, but I've seen it writ large for a long time. I've been writing about it in Macro Insiders for a long time. Now, I could have taken the commodity trade, but my time horizon and my secular framework means that I tend to err on the side of the disinflationary, so I'd rather take the setup and wait for this bigger setup, which I think is coming.
Yeah, it's so happened that the timing got spot on. But I use a whole group of things from secular trends, business cycle to technical analysis and flow of funds.
ASH BENNINGTON: And this is another interesting point to get back to this multiple time horizon, being bullish on commodities in the short term as we come into this tightening supply chain cycle, all the challenges happening with the reopening and yet still, obviously, you're very passionate about growth, innovation, and the exponential age.
RAOUL PAL: That's right, you don't stop technology in a recession. What you do is you might stop consumer behavior. You might stop marginal dollars flowing in into developing new projects. But the technological adoption of whether it's robotics or AI, or space, or crypto or any of these, genetics, that's not going away. Even if they trade sideways, they become cheap over time, because the network adoption keeps growing. Now sure, recessions can slow these thing somewhat, but--
ASH BENNINGTON: And it's [?] can get whacked in the interim of course, as we've seen--
RAOUL PAL: You need to use logarithmic charts and understand that these are volatile things. Use logarithmic charts. And I like the regression channels that I use. And you look for things like monthly log charts, where they get two standard deviations oversold, things start to become interesting. Now, for anybody interested, I kick off the entire global recession campaign with an hour and a half piece where I basically mind dump everything.
And there's about 50 charts and the production team hate me, because I gave him so many charts. But I wanted to get across in my head everything that's here, because you can double click on any point I'm making, I've been writing about all of these things, whether it's for decades, years, months, or weeks, that there's a big depth to it all. And I couldn't even cover, I could have spoken for three hours, but I got bored of looking myself on screen talking to myself, because I did it all in one piece on-camera as in my classic fashion.
ASH BENNINGTON: Yeah, by the way, I cheated a little bit, sneaked into our media server and got a sneak peek of it. The charts are fantastic.
RAOUL PAL: Oh, good. But there's a lot there, which explains a lot of why I've got this thing. These are not just based on, well, I feel that. As I said, the next shoe to drop for me is let's see what oil does. And then I'm starting to get very close to my DeMark indicator counts on bonds. Next week would be the weekly 9s and 13s all-in place.
But usually at the top of the charts of truth, the big 48 trend channel where we've just broken out, I think it fails. And normally, we get the monthly DeMark. That wouldn't be until June. I'm thinking much like 2018, we get this peak inflation fears, it starts dropping off, it corrects a bit. And then maybe later in the year, the backend of the year, yields really start to fall as people realize that both inflation and growth are disappearing.
ASH BENNINGTON: Raoul, from the ridiculous to the sublime, you're talking about bond markets. Flipping the script going to the opposite side of the spectrum, you mentioned having coffee with Cathie Wood. I'm guessing that was probably at Salt Bahamas.
RAOUL PAL: Yes, it was amazing event, the FTX Salt event. Everybody in crypto was there. Literally everywhere, I couldn't walk 10 feet without bumping into all of the favorites who've been on Real Vision. Amazing. Nobody really talks about price. Everybody is in the build phase. It's really interesting.
Crypto goes through two phases. One is price, when everyone talks about nothing but price. And then when the price or the network is less interesting, people focus on building now. Crypto companies raised 32 billion in VC last year. Everybody there is seeing what's happening in tech and everything else and they're immune to it. Now, the crypto token prices might go down. But they're immune to it in terms of their businesses.
What they're allowed to do, they've timed it perfectly in the capital they raised is they're able to now they've all got the capital they need to build the next phase of the crypto revolution. And they're all working hard, everybody from people building out derivative marketplaces to NFT staff through to the people at Solana building out all of the future of Solana network, all of them are there, all of the building stuff. People at FTX awash with cash, building out the future of the entire integration with tradfi and defi. It's so fascinating, and people are breathlessly excited.
I was literally speed dating every half an hour another meeting, another meeting, another meeting, another meeting, because people are so busy, and everyone's trying to partner with each other to do so many things, so very exciting. No hubris about it either. There was no-- well, there was a bit of champagne and lots, but not really, that was just Novogratz. But generally speaking, no hubris. Just heads down. How are you? Busy. What can we do together? It's great. I love it.
ASH BENNINGTON: Yeah, I'm still recuperating from Bitcoin Miami, and that was the same experience we had there.
RAOUL PAL: Yeah, they can drink as well [?].
ASH BENNINGTON: Yeah, a little bit.
RAOUL PAL: It's because they're all younger than me.
ASH BENNINGTON: They're not nearly a group. Not big on breakfasts.
RAOUL PAL: No, they're not big on breakfasts. I think I left the bar on Wednesday night at like 1:30 in the morning. I think Novo just turned up at two with the whole Galaxy entourage. I'm like, no, I can't do that.
ASH BENNINGTON: Hey, Raoul, questions are coming in fast and thick. Any other points you want to touch on before we