Comments
Transcript
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SMToo many 'Raoul got it wong' comments. I disagree. He never actually made a recession call, did he?. If I'm wrong about that, I'll change my mind quick. As far as I'm aware, he was saying that the probability for a recession, given all that was happening had increased. He was right. Second. He should be judged on process not outcome. We can do absolutely everything right and still not have a good outcome. Show me one person who predicted the repo bailout. Everything Raoul was saying was well reasoned, logical and based on experience. The decision to go along with this narrative was not unreasonable. The process here was sound. Third. It's too early to say. Dont we typically have up to 18 months from YC inversion for recession to show up. And finally. Raoul still done well here from his thesis. If I remember correctly he killed it with bonds and EU$. No problems from me here on this. I want RV to provide me with info, data and insights that are honest and well thought out. I'm of the opinion that they are telling me what to do with my money.
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GZIn this recession prediction discussion, I am not seeing much appreciation and accounting for the very real dynamic impacts on the US economy related to the tax cuts, regulatory reform, and energy price reductions for manufacturers. Size of economy is just about back on track from the very low growth following 08/09. I chalk up the long expansion to the extended time it has taken to revert to mean.
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CTS&P up 30% while RV was calling for a recession.
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JMWhen I first joined years ago I remember the litany of Bears seen on RV. Somebody said: "Hey, you guys need to get some Bulls on here!" Grant replied: "We're not necessarily looking for Bears, we're looking for 'smart' and we're finding it with the bearish camp." Somebody once told me to watch out and try not to fall prey to the bearish spin. The point is, he told me, is that bearish view always sounds so very intelligent and well-thought out.
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DSWhen banks started expropriating bank deposit in Spain, Greece, Cypress, etc., it was a desperate move to save themselves – don’t worry your money is safe in my bank. This was followed by the ECB loaning countries billions of Euro so they could pay off the safe sovereign Greek loans to German, British, French etc. banks – someone save our county’s banks. This saddled all the populations of Greece, Spain, Cypress etc. with enormous national debts while spinning them into recessions and grief. Since banks can now confiscate deposits, this opened the door to negative interest rates for sovereign bonds which is an easily collected tax. I expect Ms Lagarde to lower all interest rates especially at the short end. Of course, this will just drive more money to the US Dollar. Central Bankers are trying every trick in the book to recover from the 2008 train wreck caused by Wall Street. Ms Lagarde’s job is much more difficult than the Fed because of the structure of the ECB and the Euro. Good luck with your health and investments in 2020. DLS
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UJIt is great to listen to Raoul to get your mind around the problem in the economy.
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CBI'm not sure what to make of this video other than a lot of RV interviewees got it wrong. That includes Raoul on his Euro Bank call. The Euro Stoxx bank index bottomed on the exact day of the video airing and was up 26% into year-end. Everyone gets it wrong at times. Would be nice to have an explanation of why the calls didn't work out.
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JMWe have to see this stuff. Alarmism. When we get to the point where there's an absence of experts worrying THAT is when I'll worry. It's the train you don't see - that's the one you get hit by.
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JPwhen raoul turns bullish US equities its time to sell. otherwise stay long and enjoy the ride.
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TCIn general I would like to hear way more RV guests asked about their PERSONAL portfolio's. Especially the analysts and newsletter writer guests. How do they have all their wealth allocated right now? Maybe put a pie chart up at the end of every video like the bullet pointed summaries.
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DSIn this new massive money driven world, we can have a moderate recession and a rising market. The market is determined my the inflow of capital. There may be a continuation of money flowing into the market from baby boomers topping of savings, money flowing from negative rates in Europe, etc. etc. that can support a rising market when the economy is in recession. We are in a money centered world when corporation buybacks exceed CapEx. Everything is so short term, planning the return on capital expenditures is difficult. Corporate execs can keep their job and make more money buying back company stock. With all the money to be invested from QE ad infinitum vast sums of money will go into the top index stocks taking the index higher. DLS
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WMIt is absolutely true, as Marty Armstrong says, this may be the most hated bull market in history. Indeed I have avoided it and paid a dear price for not being in it. But I haven't lost anything and have loads of powder. I think it feels like everyone (almost) think things are going to just continue pottering along with interest rates at historical lows and sovereign debt now way way way above the 2007 levels. I am clearly stupid, or at least a bit feeble minded I guess. The US is now running a trillion dollar debt in what is supposedly a "good economy", my god, what happens if there is a recession? I think Raoul's commentary on the European crisis around 2013 is absolutely fanf***ingtastic. That was reality and his clearly emotional synopsis outstanding. I think he is absolutely right to warn to the best of his experience.
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DCWhat many fail to acknowledge is that the Fed is a private entity created by hoodwinked president in 1913. A cabal of wealthy families created the fed and to this day continue to receive their annual 6% dividend. The shareholders are all secret. The fed has never been audited even after repeated calls from Congress. It’s no wonder the Feds are raping middle America of all its wealth. They load up their balance sheet with more debt to juice their dividend which they most likely then further juice in the Fed-rigged stock market. If America wants to become great again it first needs to rid itself of the parasitic leech that is the Fed. The 0.001% know their empire is coming to an end and like pigs at the trough, are feasting on the final crumbs before the empire collapses. Read Empire of Debt by Bill Bonner. Published in 2006 it’s still very pertinent today.
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DdCan you guys update the killer charts PDF?
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SPWrite calls. Write calls worthless. Open another account and fund it separately - to take the opposite side. Which is writing makes puts prepared for a reasonable assignment, or appropriate cycle.
JOSH WOLFE: You have the illusion of liquidity, because you have daily trading and ETFs. They're marked on a daily basis, but the underlines suddenly might be illiquid. I think that there's a real risk of permanent impairment, which is the true measure of risk, of principle.
One of the other very interesting things, of course, is you have this mismatch between CapEx and buybacks. CapEx is a good measure of corporate investment activity and so buybacks now, eclipsing corporate CapEx, CapEx potentially declining at a time when interest rates are as low as they've been in many, many years. It doesn't bode well for the economy and it comports with your view of recession. It also comports with your view, which I think is an excellent one, of real volatility and risk amongst the European banks.
People are pushed out on the yield curve. They're taking more and more illiquidity risk and they don't realize it.
RAOUL PAL: I also think that the dollar is a big risk in this equation, and I talked about it in the original Expert View, and other people have referred to it. The dollar has been thrashing around in a very tight range. To me, as we're shooting this, I have a feeling it's going to break higher. I really do.
The reality is if the dollar is not going lower, chances are it's going to go higher. It could get stuck in a range, but I don't think that the structure of the market, to me, feels like it's going to break higher. If it does, we know what to do. That will tip the dynamics significantly towards a much faster slowdown of global growth, a much faster deceleration of commodity price, a much faster deceleration of emerging markets. I think that is the thing that would tip everything over the edge and I think it is coming.
I've called it the vanity trade. We all want to short equities, because you sound like a hero, because you sound like Paul Tudor Jones in 1987. The reality is equities in a bear market are not the best risk return, and the reason for that is that volatility goes up. Volatility in equities-- very high volatility means that the reward you get out of that trade is less high quality.
I think I've recounted that story before of a good friend of mine in 2000, 2001, who got it dead right. He was like, I'm bearish. I need to short the equity market. He shorted the equity market. Because he oversized his trades, what he found was every time he should have been adding to a trade, he was getting stopped out. Every time he should have been taking profits, he was adding to trades, and he just got chopped up. He lost 30% over that period from being right and that's the volatility of the equity market and how hard it really is to trade an equity bear market.
This cycle has been as similar to the '90s cycle, the other longest cycle in history. It has been incredibly similar. That had those two false lows, like this one had, and then eventually, it broke. It feels like we're there now.
LAKSHMAN ACHUTHAN: Right now, the bottom line is that we're continuing in an ongoing growth rate cycle downturn. It's a cyclical downturn, it's not a flash in the pan, it's going to persist. It's pervasive, it's pronounced, become more pronounced. That all is happening. It has yet to run its course, we don't see an end to that slowdown in sight. Now, necessarily, every time you begin a growth rate cycle downturn, a deceleration in growth, your risk of recession comes on to the table, it's an active risk.
If we begin to see a window of vulnerability opening up, which would mean that our indicators are falling in a much more pronounced pervasive and persistent way than they are currently, then virtually, any negative shock, any of the things that have occurred over the last half a year can become a recessionary shock. There's this view that just because the Fed pivoted that means recession is off the table. Our work says absolutely not, even though we're not making a recession call today.
RAOUL PAL: It's not confirmed yet, but everything is still trending.
LAKSHMAN ACHUTHAN: I don't think that it's ever happened that you've had four soft landings during an expansion. I'm not a late cycle guy. We think there's no reason that a cycle has to end. Excuse me, there's no reason that a business cycle expansion has to end, but every time you have a growth cycle downturn, you're at risk of a recession. You're [indiscernible].
Plenty of developed economies over the last several decades have had 15-year expansions, and just forget about China, India, and Australia-- other ones have had 15-year expansions. It's not impossible, but I'd be hard pressed to actually point to a US cycle, where you actually had four soft landings. This would be the fourth one if it happened.
CHARLIE MCELLIGOTT: If I were just to take a step back and say, where is the most crowded narrative? What is the most crowded narrative? What is the most crowded positioning? Without a doubt, it's this ongoing belief that we are accelerating into the recession with the trade tariffs as a stimulant to accelerate this move.
ALEX GUREVICH: Is this possible that we could have possibly a recession, possibly rates going to zero by a very significant, even from this point, re-price on the value of positively yielding ongoing concerns. Why do multiples cannot go several times up more?
RAOUL PAL: Remember in Recession Watch, I said there is no way the US can organize, orchestrate a weaker dollar, because every time the US cuts, so they cut 25, New Zealand's already cut 50, everybody's going to cut faster and harder than the US will, and that's a big problem.
The dollar is breaking up everywhere. Gold is screaming another signal. I've never before seen gold rallying and the dollar rallying. I've been warning about this for years now, saying this is what the end part of the cycle is going to look like. The dollar is going to rally. Gold's going to rally and eventually, gold will be the last man standing.
The European Bank chart, the SX7E is simply what I term the GMI worst chart in the world. It is the biggest top pattern of any market I've ever seen in my entire career, or of any market I've ever seen in history. I say that without trying to sound hyperbolic, it is what it is.
Today is Monday, August 12th. I'm not sure what day you'll get this, but today, the market broke that key support. Some of the banks were down 4% or 5% across Europe today, and I think they're going to go into freefall. I had that pushback on Twitter the other day from Joe Wiesenthal from Bloomberg, push back at me and said, oh, well, Raoul said this in 2013, about an article that he actually leaked in Business Insider.
What was outrageous about that was over 2012, you got overly excited about that. The world didn't end. People have no fucking idea what happened in Europe over that period of time. Literally, people got wiped out. Unemployment went to 50%, youth unemployment in Spain, unemployment overall hit about 25%. Friends of mine, everybody lost their jobs, people went bankrupt. The banks, they converted people's deposits into preference shares, and then defaulted on preference shares wiping out so many old people I know living in the village that I lived in, they took their money wiped the whole lot out.
They wiped out bank here that went into the government hands, and many other banks went by the wayside. That was just Spain, Spain was so bad that I had to buy canned food for my house, and rice and a generator because we were within days with the banks going bust. The ECB eventually forced the Spanish to take 10 billion to bail out their banking system because it was going to go under and the banks were going to close.
That wasn't the worst there. Greece went entirely bust, Portugal were pretty much bust, all of the banks, part of the banks got bailed in. Some of the banks went bust, the whole thing was hold out. Greece as a country went bust. It's still recovering to this day.
That wasn't the worst, little Cyprus, it got completely obliterated. In Cyprus, they bailed in the entire banking system, screwed everybody with any deposits, screwed all the businesses, the banking system shut down entirely and the British Army had to bring a plane full of cash in from the ECB. That's how bad it got in Europe. For anybody said I was alarmist, last time that I saw this happening, which is back in 2011-2012, really has no grasp of the magnitude of the history that occurred, that, in Europe, was the largest economic event since World War II.
The IMF wrote a paper recently that said that the only problem with interest rates is they weren't negative enough. If you want to believe that, that is the IMF, Christine Lagarde, IMF, the first thing she's going to do is going more negative. Interest rates are going to negative 2, negative 3 in Europe, and nobody's going to be able to stop it. Then they're going to stop people transferring money into cash. That is all coming.
NICK REECE: This is an extremely challenging environment to analyze in terms of the business cycle. In my view, there's a lot of mixed data. I'd say that recession risk is real, it's elevated, it has not yet become my best case scenario but I've estimated it to be between 30% and 45% chance of going into recession over the next six months. I'd say the recession risk is as high as it's been, certainly in the last couple of years, I'd say even for this entire expansion and one of the key reasons for that is that we've finally gotten yield curve inversion.
It's a very mixed picture. I think the number of positives that you can hang on to on this checklist of where we are in whether we're headed into a recession and what that risk is, is diminishing, because now you've had for the first time in the cycle, yield curve inversion so you've checked that box. LEIs are not negative yet year over year, but they might be within the next few months. We've got the manufacturing PMIs below 50 which is a good leading indicator, services have remained above 50 and we'll see how that develops. Labor market still looks okay to me. I think it still looks relatively strong.
If you look at the output gap, we are arguably above our potential GDP, which is typically a late cycle indicator. That can persist for a number of years so it's not a great short term timing indicator, but it does indicate that we are probably more towards the end of this cycle than the beginning, which shouldn't be a surprise given that we're 10 years into it, even though I agree with the statement that's often made that expansions don't die of old age so we can't just say it's 10 years old, and therefore it's time to have a recession but certainly, I would say we are late cycle.