Insider Talks – May 2020 (LIVE)

Published on
May 4th, 2020
Duration
63 minutes


Insider Talks – May 2020 (LIVE)

Insider Talks ·
Featuring Raoul Pal and Julian Brigden

Published on: May 4th, 2020 • Duration: 63 minutes

In this month's Insider Talk, Raoul and Julian will be going live at 5 PM EST on May 4th to discuss their recent thoughts and answer questions from our Real Vision Pro and Blacklist members.

Comments

Transcript

  • JM
    James M.
    7 May 2020 @ 10:32
    As a UK national I'm finding it impossible to buy EWW, XME & DBA as they do not have KIDs, even IB won't let me trade them. Can anyone suggest other reasonable approximates of these etfs?
    • IP
      IDA P.
      7 May 2020 @ 17:03
      if you search for eample Mexico instead of EWW there are lots of UCITS mexico ETFs.
    • HM
      Harry M. | Real Vision
      8 May 2020 @ 13:42
      AIGG?
    • WM
      Wolfgang M.
      7 June 2020 @ 21:54
      You can still buy them on IB selling ITM puts. When they expire, you get the ETFs in your portfolio and can sell them just as any other position. Only downside: due to options, you' re limited to position sizes in multiples of 100.
  • KD
    Kurt D.
    16 May 2020 @ 16:47
    Hey RV staff, please get Julian set up with a proper audio set up. The echo makes it a chore to aborb this premium content. Otherwise, keep up the great work!
  • GP
    Geoff P.
    7 May 2020 @ 10:48
    I'm curious if Julian would like to comment on the conduit for his hyperinflation thesis. Hyperinflation is not the same as high inflation and usually stems from capital flight. Both Weimar and Zimbabwe were high inflation money printers that propelled into hyperinflation as capital took flight (eg Zimbabwe was a long time money printer but their currency didn't blow up till they started implementing land seizures and capital left). It isn't enough for the Fed to buy bonds and stuff banks with reserves. This will do precisely nothing for either high inflation or hyper inflation. Buying debt directly from the treasury is a start on the path toward inflation but only if the government spends that money freely. If the government simply turns around and tries to make loans to encourage growth that's not going to do it. The only way we're going to see any meaningful if somewhat typical inflation is if they completely remove the post 08 banking regs and highly incentivize banks to take stupid risks. This gets us regular inflation (with a potential to land on the high side). If we couple this with direct debt monetization of a profligate government then we get a higher probability of landing on the high side, but we're still a long way off from hyperinflation. There is simply nowhere for capital to flee. I'm not seeing the trigger. How do we go from high inflation of poor monetary policies and currency debasement to a mass exodus out of the dollar? Even a reserve currency replacement wouldn't do it.
    • HM
      Harry M. | Real Vision
      8 May 2020 @ 13:41
      Great question! So taking a first stab and JB can comment or correct if he disagrees. What we currently have is a bunch of CBs offsetting an autonomous deleveraging event. In itself that is not inflation. It merely reduces the deflationary impetus of the deleveraging. But we have also unwound some of the infrastructure preventing CBs and Fiscal authorities "printing" excess money. Normal banking supervision rules are partially suspended or not enforced. The Fed is turning a blind eye. Also the Fed has (up to now) bought more bonds than the UST has issued. Another taboo broken. So while we have not crossed the Rubicon into inflationary territory, we have waded into the river. What would happen if the reach the point where the deflationary deleveraging starts to slow? Would the Fed remove its accommodation early? I doubt it. Indeed we currently have a lot more base money sloshing around which is fine cos velocity has dropped. If banks wanted to lend again, wouldn't velocity suddenly pick up? Its the politics of the thing which are particularly inflationary. We have just demonstrated that government does indeed have a magic money tree which was put at the disposal of the corporate sector. How exactly will we persuade the electorate that they cannot have the "free stuff" they want, when it is patently obvious that they can? Add to that the issues with regard to the supply side. Lost output and dislocated supply chains. And pressure to remove China from global supply chains.
    • GP
      Geoff P.
      8 May 2020 @ 16:20
      Thanks for the reply Harry. I would call that the base case for a reflationary outlook. Namely that CBs succeed in stemming the deflationary spiral and banks start to lend with a bit of juice on the side from the newly discovered MMT. The lending needed to offset the velocity issue (just offset the decline) would be tremendous based on the math due to the massive amount of base money created. This would all have to be net new credit, not refis at slightly larger balances. Even still, this isn't hyperinflation. So let's talk about the magic money tree. For the most part the stimulus money are loans requiring repayment. If they start doing basic income type printing, then we go from a reflationary outlook to one of higher inflation but we're still a long way off from hyper inflation. To cross that rubicon, we need to get a massive rush out of the dollar by everyone. It needs to be so toxic that no one wants to hold it overnight. Velocity needs to get to the point where when someone gives you a dollar for something (paycheck, sale of goods/services/assets, etc) you immediately convert it to something else (assets, goods, etc.). Simple basic income printing and / or corp lending isn't enough. I've long wondered what this trigger looks like. A break in CB/Gov credibility is certainly possible but what breaks it? If every CB is following a similar path you don't move currencies, you don't move out of one country's equity/credit market for another. You could theorize that everyone will go to hard assets like real estate, gold, btc, etc, but all debts are due in dollars. I'm just trying to figure out what that trigger looks like. Thanks again for the time.
    • JB
      Julian B. | Contributor
      10 May 2020 @ 21:15
      Geoff I think you have correctly identified the swing factor. A gradual $ decline (my base case) delivers you higher inflation. For hyperinflation you require a $ collapse with the likely trigger a reacceleration of economic weakness and loss of faith in the system. I can construct that sort of scenario but it isn't my base case.
  • BS
    Bernd S.
    7 May 2020 @ 12:42
    A different but really honest question: People in Investing, including Raoul, seem to be taking the official corona-statistics like number of infections and number of deaths at 100% face value without questioning them. That you had to do that in the beginning when much wasn't known about this pandemic, that I understand. But in the meantime there is increasing evidence that there has been a bias towards the official numbers making this virus seem more dangerous than it really is. Shouldn't our opinions change? I understand that we're trading human/market reaction functions, and not some kind of truth. But I must say that it confuses me a little bit that Raoul seems still convinced that this virus can only be got under control by vaccinating every single person on earth. Maybe I am readying people wrongly? Or maybe it's really not what they focus on with their work (which I'd totally understand). But why then emphasizing this vaccination thing?
    • BS
      Bernd S.
      7 May 2020 @ 12:44
      "emphasizing this vaccination thing?" => emphasizing the importance of it before returning to a normal life again.
    • GP
      Geoff P.
      7 May 2020 @ 14:06
      Totally agree the stats are wrong. Indeed heavily fabricated (every death, even a heart attack, car crash, etc. is labeled covid if that person happens to test positive for covid). There is increasing evidence that suggests a large percentage of the population already has antibodies. I think the problem stems from the magnitude/ineptitude of government response and the global fear campaign that has resulted in people being afraid to live normal life. It's relatively easy to hit the kill switch (shutting the econ down), but it's considerably more difficult/time consuming to turn everything back on and have people resume normality.
    • HM
      Harry M. | Real Vision
      8 May 2020 @ 13:30
      I am not an epidemiologist. I take your point and its possible that the lock down is an inappropriate policy response which should and will be reversed. But even were this all correct, I doubt I will be visiting a ball game this year, and I am not sure how keen I am to eat out (I have very little moral fiber). Most of all, I don't know how much damage has already been done; to real estate markets, to CMBS, to oil markets etc. That said, the second rule of trading is "Nobody knows anything". And the first rule is "protect your capital". So ruling nothing out.
    • CL
      Chad L.
      9 May 2020 @ 03:11
      I’ve noticed a similar bias, or rather a lack of an updated model as facts on the ground have come in. We have more data now, and the initial models have vastly over stated the severity of the medical impact on an aggregate basis. Italy was terrible, New York hasn’t been good, certain nursing homes have been heartbreaking, but many localities are very, very different. I’m in the PacificNorthwest of the US. We arguably should have been hit hardest as Seattle was an early infection point. In Oregon, the hospitals are empty and we’re laying off medical staff. Tests are everywhere and we don’t have enough people with symptoms to use them all. My wife was one of them this week. She’s negative, but she was the only person at the test site. Test came back in under three hours. We’ve stopped our own heart from beating for this...
  • RE
    Raymond E.
    8 May 2020 @ 18:02
    Harry, I just read through this thread and your responses -- Thank you, much appreciated.
  • NR
    Nathan R.
    7 May 2020 @ 15:28
    The current investing climate/fallout comes from a marriage of huge and continuing uncertainty with a highly levered and logistically optimized global system. So few have followed/follow the precautionary principle as to be almost not worth mention. We are fighting financial obesity with doughnuts and hugs. In the aggregate, the average Westerner is about to emulate Mrs. Watanabe. No trust, no yield, little growth and therefore more savings and less debt. Closer, pricier, fatter, less efficient logistics and frugality; in short, Localism and Precaution whether called that or not. Nominal growth as a totem will be replaced with full employment and risk aversion. Government ownership of both the production function and credit allocation. In other words, if Japan and Denmark had a child. That seems the most likely future. That said, the Signal to Noise ratio is currently off the chart...
    • HM
      Harry M. | Real Vision
      8 May 2020 @ 13:26
      So true. It really does seem that everywhere Japan goes, we eventually go too.
  • TB
    Thibault B.
    7 May 2020 @ 19:20
    Be careful evaluating 'value' from the long-term chart of DBA ... it includes 12 years of negative contango returns. It's also worth noting that the portfolio changed significantly in 2009.
    • HM
      Harry M. | Real Vision
      8 May 2020 @ 13:25
      Very true, but even if you adjust for the roll, corn prices are at the lows of the last 20 years. I think they are around where they were in the 70s if Peter Brandt is correct. But yes, the futures rolls exaggerates the decline.
  • PA
    Peder A.
    7 May 2020 @ 19:27
    Thursday 7th to me feels like D-day. Stocks pumping on horrible claims figures. Falling rates. Soaring gold and bitcoin. Nothing makes sense except if you accept lost faith in fiat.
    • HM
      Harry M. | Real Vision
      8 May 2020 @ 13:11
      It certainly feels like the Fed has traction in its attempts to offset the private sector deleveraging. Worth noting that stocks ex-FAANGs are not anywhere near as positive. It might be the case that the indices are now so dominated by the biggest caps that its arithmetically hard for them to go down unless the FAANGs go down or see rotation.
  • IP
    IDA P.
    7 May 2020 @ 20:55
    One question to Raoul Pal, how can you be bullish gold if you expect positive real rates soon due to negative inflation?
    • HM
      Harry M. | Real Vision
      8 May 2020 @ 13:08
      I think RP anticipates the policy response to be very positive for Gold..
  • NK
    Nir K.
    7 May 2020 @ 22:47
    Hi guys a quick question, what will the Deflationary event that you guys both expecting would mean for Gold ?
    • HM
      Harry M. | Real Vision
      8 May 2020 @ 13:07
      That kind of deflationary event is, on its own, negative for Gold. Thing is, that kind of deflationary event is going to be resisted by policymakers. And the policy response (aggressive monetary easing, fiscal policy etc) is likely to be very positive for Gold. Particularly if RP is right and they introduce negative rates in the US.
  • AB
    Alain B.
    8 May 2020 @ 08:59
    Julian, would you recommend buying call options on DBA instead of the ETF?
    • HM
      Harry M. | Real Vision
      8 May 2020 @ 13:05
      Calls might not be ideal for that call because I think JB has a very long view in mind. Agricultural commodities are very cheap but there is no catalyst for the idea just yet. So its the kind of thing you want to accumulate but with a degree of patience.
  • AK
    Aleksandr K.
    7 May 2020 @ 10:54
    What is the status of the call spread trade? shall one roll out to Jul expiry? or the bet for June is still on?
    • MH
      Michael H.
      8 May 2020 @ 04:00
      Raoul said on Twitter this trade might take a few tries before it pays off so I assume he’ll let us know when to roll.
    • BS
      Bernd S.
      8 May 2020 @ 09:22
      looks like over the last night it went from 30-40% down to 50% up. Still got a month. I find it fascinating how this is developing.