RAOUL PAL: Hi, everyone. I'm traveling right now so I'm doing this from my hotel room. But I thought there is so much important going on that I need to give you an update. Now, with geopolitics, as I've explained, it is a really difficult game to try and understand the probabilities and what you should do. The first thing to do, when it comes to geopolitics, is to do nothing-- is to watch, absorb, and try and understand what the playing field is here, what the ramifications are.

Now, I must admit I didn't think that we'd get this far this fast in terms of Russia's actions within Ukraine. So I've been slightly back footed, but I've already been expecting a global slowdown in the economy. And so I've been starting to position that way by buying bonds, some gold, some dollars, that kind of stuff. But let me talk about what I'm seeing now, how I'm thinking through this current event, and then some of the ramifications.

Now, this is geopolitics. We have no real clue how this will play out. That's why it's so hard. Economic events are much more forecastable. Geopolitical events have many more different nuances. And you have to use that, kind of, decision-tree structure to assess probabilities of all of the things that could happen-- and trying to figure out, OK, how do I protect myself? Can I make money out of this? What does this all mean for the much bigger picture? So there's a lot here.

So let's dig in quickly to where we are now. There are, as ever in geopolitical disputes, two sides of a story. And, when you're trying to analyze geopolitics, you need to be aware of both. So then you can understand what is propaganda, who you're being told by what person, for whatever reason. And, in this situation, we know Russia's been very clear on its intentions to buffer its borders. Peter Zeihan's piece the other day made it very clear. I think Dee Smith's gone through this. And most of the geopolitical strategists we've had on Real Vision have also looked at this. So Russia's been very keen on stopping NATO encroaching on its borders.

NATO, on the other hand, is very keen on not letting Russia encroach on its borders. But it's been moving NATO's way. And this whole game has been played out for some period of time. I've written this up in GMI and written it up in Macro Insiders, Real Vision Pro, Macro-- is this whole situation that we saw started with Chechnya, then moved to Crimea. This Ukraine story was the Crimea story. Then, it's the splintering states. Then, it's Ukraine itself. It's been a story that the Russians have had an obsession with and how they want to deal with it for their own sovereign protection. And I don't want to go into the geopolitics of who said what to whom and why. That's not relevant right now. What's relevant is trying to figure out where we are.

So I think we have a very narrow window, maybe two weeks, maybe less, which is that the Russians have surrounded Kyiv, pretty much. Now, we understand that the supply chains are not good. But we also understand the Russians have done this a lot of times before with bad supply chains. It's pretty common, and sheer brute force is how they do it. So they're surrounding Kyiv now, and what happens in the next few days or couple of weeks is vital. You can see the Israelis have been negotiating on both sides. Maybe there's a negotiation to be had here.

And the negotiation would be something like-- and again, we don't know because this is geopolitics, and there's a lot of different national pride and a lot of consideration, global consideration, all in this. But let's assume that they can agree a ceasefire, agree some sort of splitting up of Ukraine. So they allow the splinter states. Then maybe, they say, well, the government can move and have its own Ukraine but over towards the West Side. And the Russians put a new government in Eastern Ukraine. You have West Ukraine, East Ukraine. Something of that sort kind of solves a lot of the problems. Although, obviously, it's still not a good situation. And we'll come on to the big picture still later.

But that could see a de-escalation if we can find some variation around that, where the Ukrainians themselves get some sovereignty. They will-- may lose some sovereignty or they lo-- they keep sovereignty of the whole country, but a puppet government gets put in. And the splinter states go to Russia, in which case they're kind of surrounding Ukraine anyway with Crimea as well. That, to me, is something where sanctions get dropped-- not dropped but eased off over a period of time because everybody feels like that they've negotiated a settlement. And, therefore, Russia can be rewarded with something. That's the best possible case scenario that I see right now. It's not my highest probability case either.

Case number 2 is that the Ukrainians don't negotiate, don't surrender, and the Russians level Kyiv, which I think is the highest probability case. Again, I find it really tough to assess the probabilities. But, in my mind, that's what I think the most likelihood is. Then, the Russians say-- they've got two choices. One is to keep Ukraine as Ukraine or the other thing they've been threatening is take away its sovereignty, which is I-- Russia takes over Ukraine. They either put in a puppet government-- it might be too late for that now-- or they take it over.

OK, that is a bad situation, a really bad situation because clearly sanctions are not going away. NATO is going to amass weapons and defenses on the borders. Tensions are going to be extremely high, and the food crisis is going to be writ large. So, in scenario A, the food crisis still happens. We still go into a global recession. I think that's almost a certainty now. We were going there anyway, and now this is exacerbating it. And that's not going to go away. I think we're going to miss the harvest season in Ukraine. I don't think that is going to get a chance to harvest when you're at war. And then, the planting season gets missed as well.

Then, we've got the situation with fertilizers, et cetera. It may be a very difficult agricultural season globally. So that's 1. On the second situation, if the sanctions are in place longer, now we've got a full splintering of supply chains that has to happen. And it's forced to happen in a period of time. That is a nightmare situation where Peter Zeihan's world of really dramatically increased food prices leading to civil unrest, crime, all of the things on a global basis is pretty likely. That's really ugly.

What that can do for the Middle East, what it can do at other countries-- I mean, I'm in Utah right now. And the taxi driver-- I always chat to the taxi driver. And I asked him where he is from. And he said, Sri Lanka. I said, how's things in Sri Lanka? And he said, terrible. I said, why? What's going on? He said, well, people are out in the streets rioting or protesting. There's massive queues outside the gas stations. I said, yeah, gas prices are high. He goes, well, that's not the issue. The issue is the government's run out of dollars to pay for that. So they just didn't buy enough gas. So there's not enough gas for the country. These are the kind of linkages that happen in situations like this.

If Russia remains out of the global system, which looks increasingly likely, then we probably have a big liquidity problem. And that spits around the world in various ways, whether it's countries who are trying to get access to dollars, banks trying to get access to dollars, or whether it's credit spreads widening as people pull back trying to assess the risks that are going on. And we don't really know-- I mean, how does it affect Egypt? How does this affect the Middle East at-large? How does it affect all sorts of countries? Again, we don't really know yet.

But that's a hugely concerning moment, and that's a big global recession, if that takes place, and a massive, monumental geopolitical shift, as the world really is forced to separate out-- China start separating out-- and again, we'll come to a bit more of that in a sec. Scenario 3 is the worst case, which is-- I think that Russia's made it clear that, if you oversupply Poland with weaponry to give to Ukraine, then they're going to consider Poland as part of the war. This is Peter Zeihan's point about a potential invasion of Poland.

I'd put that at a low probability, but what the hell do I know? If that is the case, then, OK, this is now the worst-case situation because this is NATO versus Russia in a full war. I mean, I can't believe I'm saying these words. But that's where we are, and it's kind of shocking and terrifying. The issue I have with all of this-- and I had underestimated-- is the knock-on effects are much larger than I first realized-- that how things can spiral a very few decisions into something utterly terrifying that we've not had to face certainly in our lifetimes and certainly not in the West. Other regions have, obviously.

So it is-- it's kind of on tenterhooks. The next two to three weeks, we will find out whether we have scenario 1, scenario 2, and then after that would be, will scenario 3 come into play? So those are the three main things. So what are the ramifications? The ramifications is something I've been talking about. And Dee Smith made an incredible five-part documentary on Real Vision called "The World on the Brink." And, if you haven't watched it, you absolutely should watch it. It's forecast all of this. And that was made back in, I don't know, 2015.

The world is splitting. I think everybody is aware of that, deglobalization writ large everywhere. And everyone's going to have to go to localized supply chains. And so that means the US, Canada, Mexico, will become more interdependent. I hear that the US is making moves towards Venezuela to see if there's anything that could be solvable there. The US needs another footing over in the East. And, obviously, Iran, with its oil supply, is a very important place and always has been in the world.

Anybody who wants to understand that, read the book called The New Silk Roads, which gives you-- Peter Frankopan's book, Silk Road-- gives you a whole understanding of why that region is so important, particularly Iran itself. So I understand why they're doing that because it kind of neutralizes some of the situation and some of the supply shortages going on. The other issue in the geopolitics is everybody has now learned that the dollar is a liability not an asset. So i.e. dollars can get taken away from you at will.

So, even though it looked like a very smart move to weaponize reserves and the financial system, what is actually happening is you are now forcing the de-dollarization of the world. Now, my view on that is that's a slower process. Obviously, Russia just got thrown out. But they've been planning for it. Let's be absolutely clear. Russia's been planning-- they probably didn't imagine it this fast, this apocalyptical. But the Chinese will be planning it, too. Their central bank digital currency is part of that planning. So everybody wants to move away from the dollar.

And, right now, the instant thing that any central bank can do is own more gold. So I think this is a very bullish gold environment for central banks because that's what they do. It's an asset that they're comfortable with. I also find very concerning, at a geopolitical level, that we have frozen the assets of people that have not been tried in any sort of court. Now, it depends whether there's a confiscation going on here or freezing of assets. It depends on E.U. law and who's taking what. But it tells people that property ownership is not something that they perceive. If it's--if you own a property that's not in your jurisdiction, you don't own it.

So I think that is, again, a shift that's going to take people's mindsets-- obviously, all of these trends are very bullish for Bitcoin particularly but the crypto world overall over time. Now, crypto trades both as a risk asset and a store of value. The store of value element is becoming predominant right now and very clear. The risk aspect-- well, it's a bloody risky world out there. So let's wait and see. China, how that plays out in all of this, we don't know. But China's been moving toward separating. And I can't yet think of all of the ramifications as we are already splitting these worlds apart.

If this gets accelerated, what does that do? But the world is a net debtor in dollar terms. And, the more of these debts you start writing off by forcing people out or seeing defaults, the higher the dollar goes. And the dollar is a big risk here. So, if you get a liquidity squeeze, the dollar goes up. The dollar's the one thing that I'm looking at. But we also know that the Fed try and stop that because they know the dollar is the wrecking ball. They can't let the dollar go up too fast, so they start supplying the world's-- the world's banks with swap lines. So, every time they've done that in the past, it's eased the issue.

But here, you've taken out a very big economy. I mean, Russia's gigantic. Russia probably has more natural resources than the rest of the world added together. It's something of that magnitude. So the GDP may not be big, but this asset base is enormous. And, without that in the world, we end up with a huge loss of trade. And we've also got these dollar liquidity issues, which I think will bite the Europeans, bite the US, and bite everybody else. So I think that's all setting up to be a bit of a mess. The Fed will come in and try and flood the market with swap lines, so that the money printers start in different ways.

And I know there's a lot of people who watch this go, well, that's not money printing. It's enough to start changing the denominator effect of certain assets. So be cautious of that one. I actually like bonds in this environment because, if you raise food and fuel and input costs, you're destroying demand. We've already seen demand slowing globally. We're already seeing a lot of forward-looking indicators. I've written a lot in it. And I wrote something in the GMI that you all got-- I think everybody got it-- this shows some of my thinking about all of that. And I've been writing about that frequently in GMI and Macro Pro as well, to talk about how that's playing out.

But it's playing out exactly as expected. The world is starting to slow down. The U.S. has started to slow down. Bond yields are starting to come off. And I think, even with higher prices, I know everyone thinks it's inflation. I think this is a massive tightening of monetary conditions and total demand destruction on lower and middle-class households. So I think that is a big problem coming, and I think bonds should fall in yield. And, you know, right now U.S. bonds are a safe haven, so the safe haven flows that come into that as well. I think, generally speaking, bond yields should come down towards the 1% level. And let's see.

Are we building structural inflation by the changing of supply chains? Or does that get solved by technology? You know, are factories that come from China using people, that are moving to the U.S. using robots, inflationary or deflationary? Maybe it's inflationary first as you build them and deflationary over time as the costs come down. As I said before, the digitalization of anything tends to push costs down to zero over time. So I think that's going on. I think, in Europe, we've also got-- sorry, there's a lot to jump around with-- with the green energy push-- and I know a lot of people think it's dead.

Poland's been fighting for it to stop the carbon system. But Europe is under pressure to, in the medium term, transition away from reliance on energy from Russia or maybe Algeria, which is a southern neighbor that has a decent amount of gas. It has to move away from that. And the only way is to go towards renewables. There is a friction point. It takes time. And that friction point can cause these supply disruptions because there's not enough supply and there's still demand for it. So that has to change over time. But I don't think the Europeans want to get rid of the carbon system they set up. I think they need to encourage it. And I know it's painful. So I think the Europeans are going to start dealing with pain via fiscal stimulus.

I think they're going to have to give people money to pay for the rising cost of fuel and food. That's an MMT-style transaction, where essentially it gets monetized by the ECB. And maybe they do similar to-- yeah, I think they want to offset the fuel costs to people but still force the corporations and the utilities to change to green because, if they don't change, then they're always going to have this reliance. Now, if this flares up further with Poland and NATO and Russia, I mean, there's no way they can justify having that reliance. So that's a complication. There are side deals that we cut. Russia and Germany have direct pipelines. There's-- again, I don't know. But we need to be very cautious of how this plays out.

So that's the carbon situation because carbon credits has been a trade that I've been in for a while. They've had a huge sell-off. I actually quite like it. But again, it's much less clear at this situation. So I will give you that. I don't really-- I'm not sure. Bonds, I think, are a decent bet. Gold, for the reasons we talked about, are a decent bet. Long term, I think it plays into what crypto is and means in this world. A distributed network that is not owned by anybody but owned by everybody is almost priceless in a situation like this. I think, when it comes to equities, we don't know. If situation one comes across, i.e. we get some resolution. It's a dirty, ugly resolution. But it's something. Then, I think equities rally. I think that is possible.

I think, even scenario 2, equities can rally if they finish the invasion and then something-- we get some clarity. Clarity is what markets want. Is it going to go into World War III or not is what we're trying to grapple with right now. If not, that's OK. Markets could rally. Then they have to deal with the recession coming, the market sell-off again for that, quite possibly. So it's not very clear. Equity markets are troublesome. I've been waiting to buy tech, and I don't think we can get there until we start to see the monetary spigots opening up again. And I think they will come, and I think they'll come in form of transfer payments.

Don't forget. Transfer payments was the new genie that came out of the bottle in COVID-- is they could give direct monetary handouts to people as opposed to just blanket fiscal stimulus by cutting taxes. And I think they're going to have to do that here because people are going to get really hurt by the situation of food prices and fuel prices. Now, can you trade commodities? Can you expect them to go further? The hard thing is we don't know.