ASH BENNINGTON: Welcome to the Real Vision Daily Briefing. It's Friday, June 25th. I'm Ash Bennington joined by our CEO and co-founder, Raoul Pal. Raoul, always a pleasure to have you back.
RAOUL PAL: Always good to be here. I'm back in Little Cayman this weekend. It's Global Macro Investor writing weekend. I come here with the peace and quiet. Try and concentrate and figure out what the hell's going on.
ASH BENNINGTON: This is when you go into the bunker?
RAOUL PAL: That's exactly right.
ASH BENNINGTON: So, Raoul, here we are. It's Festival of Learning week at Real Vision.
RAOUL PAL: Yeah, it's been amazing. Ridiculous. Some of that festival headlining triple X last night was crazy with Neil Ferguson and Josh Wolfe, Josh Wolfe and Daniel Kahneman, and then all three of them together in a round table. That was a special piece of Real Vision magic. The whole thing has been incredible. All the Real Vision rock stars are here, teaching people as much as they can, to help people navigate their own financial journeys. It's amazing.
ASH BENNINGTON: Tell us, Raoul, some of the conversations that you've participated in, that you found particularly interesting and what you learned from them.
RAOUL PAL: Well, I've been in that, because I've been so busy doing other stuff as well. I've been in and out of as many things as I can. It's generally the humility that people in financial markets have once they've been around a while, I think that's always a key factor is not, and I always say this, is the moment you think your shit smells of roses, you're going to get your face rubbed in it. That's the whole point is you need to be humble. You need to self-analyze. You need to understand what your biases are, and whether they're hindering you or helping you. I think that was one of the big functions of the entire thing, is that psychology around all of that.
ASH BENNINGTON: I'm also curious as this is the enter the bunker weekend, tell us what you're thinking about right now.
RAOUL PAL: I think the markets were in a transition phase. I think we're transitioning from the inflation narrative to a lower growth narrative. Lakshman from ECRI and myself talked about this at the Festival of Learning, it feels that the market is going to be overestimating growth and inflation for the next six months, potentially. That's pretty common. After a recession, you get this growth spurt as everything comes back online, and then it tends to weaken off.
I see a reasonable amount of economic evidence for that. I'm going to be digging into that over the weekend to look at that. I think that over the next six months, economic growth is weaker, inflation is weakened. Inflation is the hot narrative in markets right now. Where the inflation data today, people are, my God, bond yields went up again. The bond yields have actually been falling for a few months now. That I've always said, bonds generally speak the truth.
Now, the question is, how far bond yields can fall? That's what I'm focused on. Because this transition is important. If bond yields break, 10-year bonds break 1.40, which is the uptrend, then they could go significantly lower. That's again, almost always happens after a recession. Bond yields actually go lower again. I'm looking for that and looking at the fiscal cliff that's coming. Many of the fiscal policies start rolling off. I'm looking at the effects of their post reopening. There's pent up demand and that slows down, now, it's been brought forward. I know that David Rosenberg spoke about that with Ed, this week as well on Real Vision.
I'm looking at all of those things, and I just get the feeling that this transition will see bond yields fall. That probably will coincide with the dollar. The dollar looks like it wants to break upwards from an inverse head and shoulders. I talked about this last week on the Daily Briefing. Or you can use the euro chart which is a fantastic chart. It was a huge head and shoulders top. If that breaks to 118 level, we could see a significant move from here, that will be the dollar going up.
I've explained to people that dollar going up tends to slow growth, tends to lower the inflation narrative, tends to bring down commodity prices, that would coincide with the falling of bond yields. There is a potential setup there. I don't know if it's going to happen or not, but that shift would create a shift for markets as well because value outperforms growth in these more inflationary times because of the discounted future cash flows of these growth businesses. If that transitions, then we'll see the exponential age stock start to perform and we've had a good week for stocks like Apple, Ark, the semiconductor index, and let's say stuff like Twitter. A lot of these new economy network effect stocks were doing well as bond yields came off, but we haven't got a full signal yet.
The other thing about transitions is it can upset markets. It tends to coalesce risk. If you get a transition in narrative, you can often see a selloff around that period as well. I got my eyes open on all of this stuff right now, nothing has immensely changed yet. The only thing for me is, I see some of the growth indicators coming off. I see the Chinese growth coming off, and I see bond yields overall edging lower.
ASH BENNINGTON: Raoul, as you work out over this weekend, your position on this, you're thinking on where we are right now, can you give us the broader framework for what you see and how you think about the transitions out of recession? For example, you mentioned that bond yields typically fall during that period. I think it's so important for people to understand the bigger framework that you're working in. Talk about what the traditional structure is, because I know, in some ways you have a view that builds on the consensus narrative in a slightly different way.
RAOUL PAL: Generally speaking, well, in fact, always, bond yields fall coming out of a recession. They rise at the end of the recession. The growth narrative becomes too excessive, because really, economies coming out of recession take time before they get traction. It usually requires two more rate cuts, or in the case of the last recession, five years of QE before you can let the stabilizes off. I know everyone's like, oh, the Fed, inflation. We don't know we can take the stabilizers off. I don't think we can.
Normally, you can get a growth slowdown pretty quickly afterwards. Often, equity markets will have some retest, some correction, as they're like, what's going on here. We're getting into a double dip recession, what's going on? Bond yields tend to fall. That's usually the process. Then we usually get more stimulus and the markets go up again, everything recovers, bond yields either continue to fall or starts their rise that happens over the business cycle.
A business cycle is now the predominant driver of what's going on, and that should eventually transition to further growth and if that happens and the dollar stabilizes, I think it goes up for a bit in this weak growth period. If the dollar then stabilizes, then people start moving out the risk curve. That's growth stocks will do well, and then out to emerging markets. That's generally how things play out coming out of recessions.
ASH BENNINGTON: It's such an interesting point and a key framework, I think, for understanding the past and also framing the future.
RAOUL PAL: Yes. People over extrapolate commodities. Yes, some commodities are going to do really well over this full cycle but not all. I don't think. Things like copper I've talked about before, because that's related to the ESG trade, because electricity needs to be conducted somehow and copper is the best thing in the world to do it. You need tons of it, or millions of tons of it to be exact. Some of these commodities are going to do really well. If the dollar is not falling, then things like agricultural commodities will get over the supply and demand issues and that will die off.
I don't think we're going to see massive demands for steel and cement and other big industrial stuff. I think we're going to see a bifurcation, which is what, you and I haven't used in a while, but a bifurcation in commodities. I don't think the commodity trade is a one single trade. We'll have rolling issues with commodities, until the global economy fully opened, and the supply chain backlog has sorted itself out. Oil could drive higher for the time being. Nat gas is now is appreciating on the back of the hot summer in the US. It looks like it's going to be a record summer.
There's a lot of different stories going on, but I think that eases over time, the inflation narrative will ease, and people are going to be focused on okay, where can I get growth and buy capital from? I think it's going to come from the exponential age style investing and I think it's going to come from emerging markets.
ASH BENNINGTON: Raoul, I should say the questions are already starting to flow in. A couple things I wanted to touch on before we jumped into our viewer questions, I don't know if you've seen this piece yet, Raoul. There's a piece live today on Real Vision Crypto. It's a conversation that I had with Hugh Hendry and Kevin Chou of Rally. I think it's an absolutely just intriguing type of conversation. It's the--
RAOUL PAL: Yeah, and I sent Hugh down this rabbit hole. I got involved and we did to that live event. I talked to him about communities and tokens, and his head just exploded. I found him on Twitter then reaching out, hey, who do I need to speak to? I set him up with a few phone calls. Then you set him up with Kevin to say, right, let's get-- because I love this, because I'm actually doing this on the platform as well. If people follow some of the stuff I'm doing in crypto, I'm actually trying to learn about this community tokenization stuff, because I think it's the future of all business models. It's going to apply to Real Vision as well. I've said Hugh on that path, so he's acting as another agent in this learning journey for all of us to follow. Because this is a great way to follow by piggybacking on somebody else. A great way to learn is piggybacking on somebody else's learning.
ASH BENNINGTON: Totally, I was describing this to some of our colleagues here at Real Vision by saying, this is the kind of conversation that happens every day in Silicon Valley, on Sand Hill Road, in New York, in the City of London, but you actually get to watch it. That's such an intriguing aspect of this.
RAOUL PAL: Exactly. I want to do more of this at Real Vision, to send people on these journeys of understanding. I'm trying to do that with this Exponential Age, and I'll be doing a lot of content on that, and Real Vision will do some, too. We will do learning journeys on this tokenization, the future of business models. That's another one of my personal favorites. We'll take people down in the emerging market journey, and hopefully the commodity journey. Some of these other journeys, gold and gold miners, that's another big journey for people to take. Coalescing around these big things and letting people learn as we all learn is the right way of doing it.
ASH BENNINGTON: That's I think perfectly said. Talking of journey, I know we have this clip queued up, Nick Correa, take it away. Hit the clip.
HUGH HENDRY: Part of my initial draw was the notion that for people that are bestowed with a house or a share portfolio, etc., but just have latent talent and can come on, then we can turn them into assets. Here I am and I was a former asset manager, and I'm opinionated about asset valuations. I struggle. Again, I hope this dialogue can continue, because I think in terms of trying to open it up to the Real Vision community and others, I'm willing, more than willing to offer myself up as a real-life experiment. I don't know if I get past your [?] but more than [?] I say, boss, but I really have envy with a Hugh coin.
ASH BENNINGTON: There you have it, Raoul. Exactly what we're just talking about. The journey, you can actually see Hugh journeying down this path and talking with Kevin Chou, who is truly one of the experts in this space.
RAOUL PAL: I love Kevin. I'm really interested in what Rally are doing. It's a really ambitious-- I don't think most people understand it yet but I think it's going to play a big part of the future. What's so great about Hugh is he has an inquisitive mind. So many people approach things with dogma, are what you need to approach it with his pragmatism and openness to learn. If we can follow somebody who uses that approach, we get to learn more. I love it.
As people know, I don't like tribalism. I don't like dogmatic ideas. What I love is people who were open to absorb. Again, I'll refer to the interview with David Rosenberg, and Peter Boockvar, which was fantastic. Ed conducted his last interview at Real Vision. It was amazing because these two guys were open to a discussion where they had opposing views and we could really dig in and learn. That's magic.
ASH BENNINGTON: What a swan song for the great Ed Harrison here at Real Vision to do that incredible piece.
RAOUL PAL: Absolutely. A really great piece.
ASH BENNINGTON: The questions are rolling in. I want to start asking these, unless you have something else that you want to touch on, Raoul, before we jump in.
RAOUL PAL: Nope.
ASH BENNINGTON: The first question is one that I've been thinking about, I know you've been thinking about, comes to us from Ryan. The question is consensus is that inflation has started, but Bitcoin is struggling, what are your thoughts?
RAOUL PAL: I think it's wrong to try and analyze Bitcoin with a macro perspective outside of the longer run. The longer run is central bank balance sheets are expanding and that's an ongoing process that will, over the next decade, we expect that to continue. There is very limited correlation between Bitcoin and any other macro thematics. There's very few factors that you can isolate. The factors in Bitcoin right now is there's mining shutdown and restrictions in China and that is causing selling.
What's fascinating is crypto volumes have imploded. That's telling you that the liquidations are over. I think we're in the final stages of this repositioning from China and the markets will stabilize in due course. We're already seeing whales accumulating at a very rapid rate now and it feels that the process of Chinese handover of crypto to the world is close to an end.
It always happens on the bloody weekend. I don't know why because the Chinese are obviously too busy to do it on during the week and there's only on the weekend they can hit the sell, sell, sell button. Then we have to deal with that, but it is what it is. I've talked about this a lot.
It's very similar to 2013 in Bitcoin. The peak to trough selloff was about 65%. It feels that this is going to be something very similar and then before you know it, the narrative changes. I was swapping emails with Tom DeMark, who very graciously sent me the other email about stuff. He was looking for the markets to trade lower over this weekend, and he's been telling me this for a while now.
He was looking for a potential low of about 25,000 in Bitcoin, that would be the low. I'm getting a number of different corroborating evidence that somewhere between here and there, and probably in the next week, maybe even less is the low and that's how I think about it, too. I think we're very, very close.
ASH BENNINGTON: Three things. Number one, I think that's spot on about the Chinese story is what's driving the short-term flight price fluctuations, not the broader macro story, or even the broader use case for Bitcoin or skepticism about it, I should say. Number two, really interesting to me to just watch this and see that there seems to be a floor support at around basically the 50% retracement from the 52-week high around 32,000. I know it's dipped below briefly, but it has bounced back relatively quickly within a period of like, I think two or three hours when it dipped down to 29,000. There seems to be some support at 32,000, 50%.
RAOUL PAL: Also, what is interesting is there's this very obvious head and shoulders pattern, which everybody's freaking out about, but it broke it last week and then went straight back above it, which is interesting because normally a pattern like that breaks and it's freefall. Let's see what happens over this weekend, but I think people should be on alert for a reversal soon in all of this. That's how I'm looking at. I think we're done in time and price pretty close.
ASH BENNINGTON: Number three, Raoul, why the hell do people liquidate their positions during the most illiquid periods of the market on the weekends? It's baffling to me.
RAOUL PAL: I just don't understand. Or as the market got itself in this psychological mess where they fear the weekend, what's China going to do, so traders close out that position. I have no idea. It's the madness of crowds. People always do the wrong thing at the wrong time.
ASH BENNINGTON: Here's a great one. Going back to some of the macro themes that we've been discussing. It's from N Renovatio and the question is, how to navigate risk of a potential transitory, strong dollar while still playing the exponential age thesis? Raoul, thoughts on the strengthening dollar and the exponential age.
RAOUL PAL: I don't think the strengthening dollar is an issue because it lowers inflation, and it means that US assets are more attractive. I don't think that's the issue you have to hedge for exponential age. Exponential age, you actually need to hedge with interest rates, so you might pair some puts on the TLT against your long positions in these stocks. I haven't yet scaled into my exponential age bets. I'm thinking I might do something very soon, but I have not done it yet.
I'm still 100% crypto looking to allocate money into these themes, but I really need the inflation story to be clearer, i.e., bond yields telling me that it's safe to go ahead. I just don't have that yet. If you want to go early and there's nothing wrong with that, because it's a long-term theme. I'm just trying to finesse the entry point. Then you can buy some put, some bonds and maybe that's the easiest way to do it.
ASH BENNINGTON: Once again, back to macro from [?] Rider. Question for Raoul, what are the macro factors that historically lead to stagflationary environments versus inflation or deflation?
RAOUL PAL: Stagflation is something the market always shouts about, and I've never seen it. Not in my investing lifetime stagflation been an issue. It was probably an