Market Breaking Points

Published on
April 4th, 2018
17 minutes

Market Breaking Points

The Expert View ·
Featuring Raoul Pal

Published on: April 4th, 2018 • Duration: 17 minutes

Raoul Pal sees many critical markets at absolutely key levels. He starts with the tech giants, explaining why Google's chart has become "the most important in the world," before moving on to a bevy of other stocks, indices, currencies and commodities. What will break first, and how bad could the damage get? Filmed March 29, 2018 in Grand Cayman.


  • JW
    James W.
    15 April 2018 @ 05:59
    This is actually a pretty good watch after a lag of a couple of weeks.
    • EU
      E U.
      2 December 2018 @ 22:13
      even better after a couple of months. Look at Oil.
  • EU
    E U.
    2 December 2018 @ 22:11
    Watching this in December 2018. Looks like Oil has hit. Looking at the Dollar now based on EM funding issues and short squeeze..
  • DR
    Daren R.
    6 April 2018 @ 07:58
    One line of personal thought given this could be a big buying opportunity: That lack of evidence so far of a lift in both the velocity of money and real money aggregates with the latter at similar to levels in late 2007 when price action felt similar is what inhibits me from viewing this period a time when the real economy takes over from the financial, typically causing a correction one buys as a need to re-reprice capital dawns but is followed a bond -equity switch as labour and savers at last become beneficiaries as growth continues. This would typically cause the lowering of NPV estimates given higher discount rates say in Tech and a rotation into float businesses for example. The confluence of this with Google & Facebook’s Big Tobacco Moment could be said to have merely amplified the impact this time. The reason some of those macro pundits who were so negative about financial repression from QE are not celebrating the beginning of the end of that process and allocating now meaningfully to multiple beneficiaries to me is the ongoing downward momentum of the leading monetary indicators at a time when growth and inflation trajectory is ebbing already and fear the malinvestment built on leverage it created will have to come home to roost noting near record high global debt:GDP. Paradoxically if they are right, given a look back at Philip Morris’ stock price from the its actual big tobacco moment one gets the impression the impact is far slower and less damaging at least in that example than the news flow impulse may have us believe. If there is a cap on rates from ebbing growth then the high free cash flow low debt portion of the FAANGS relative growth advantage may once again actually widen and attract a rarity premium even if only relatively.
    • DR
      Daren R.
      19 June 2018 @ 09:39
      With benefit of hindsight, no Big Tobacco Moment for Facebook so far as stock near new high's !
  • TT
    Timothy T.
    26 April 2018 @ 11:28
    Complex reactions. Bigger picture out there indicates paradigms are shifting. It is all about expectations on how the US is going to fund itself if the Fed is tightening. And what is happening to UST holders in this environment and their reactions. And then there are those who think the Fed will not let rates rise to point where US become stressed in funding. What is the choice? QE4? And on top of all this, we have a trade war brewing, with US using sanctions to threaten Russia and China. What will be reaction in trade? Moving away from USD settlement will likely be accelerated. The big picture implies less global demand for USD going forward and will impact how USD moves. The key is how FX ties all the markets together, because the big flows will be in that space.
  • WG
    Wade G.
    20 April 2018 @ 15:07
    Thanks Raoul for such an excellent presentation... coherent despite its complexity,... reasoned, and measured. Really outstanding. What a pain trade this scenario would be. I'm going to have to brain storm trade ideas, including sizing, to at least attempt to account, or partially hedge, for this scenario. Objective one is to figure out how frightened I am of gold under this view. Don't think I can count on the strong inverse correlation to dollar breaking down here (and wish Raoul shared any current insights he had on that!). Still, great, great, food for thought. Thank you.
  • BH
    Ben H.
    19 April 2018 @ 07:51
    I think I agree that Raoul's call has been right for a long time but things have certainly changed a lot in the last 12-18mths.... I think you need to revisit that long term USD chart that was right several years ago but now looks like returning to a long term bear market. Twin deficits as the driver of this weakness says that the long term driver of the USD weakness has been monetary debasement which is an argument finally returning after a long 7-8yr uptick already. Low was in 2011 and cmd cycles also work in 7-8 yr cycles... I think AUD actually saying the opposite that mkts are sniffing out inflation finally and we see that in ally/nickel this week showing that even with trade wars/sanctions cmds are super well bid
  • NT
    Nicholas T.
    13 April 2018 @ 03:52
    Fun preso and good discussion of the important macro linkages. Thank you. However, the dollar and oil view remains wrong. Time to give up on those theses. Dollar is consolidating and then going lower. Oil is already moving up... positioning is not as important as you suggest. It’s just one of several factors behind the micro fundamentals.
    • IP
      IDA P.
      14 April 2018 @ 17:15
      could you please explain why dollar is going lower ?
  • LA
    Linda A.
    13 April 2018 @ 15:46
    Oil mkts & recent gold break-out anticipates geo-political chaos. If gold breaks the $1,385 - $1,400 key areas, war may be likely. I am long oil, gold, pm and vix.
  • NT
    Nicholas T.
    12 April 2018 @ 23:23
    Fun preso and good discussion of the important macro linkages. Thank you. However, your dollar and oil view remains wrong. Time to give up on those theses. Dollar is consolidating and then going lower. Oil is already moving up...
  • KR
    Kenneth R.
    6 April 2018 @ 14:26
    AGree with 80%, he has been wrong on his Oil call for a long time now. So I decided to explore that: The oil bears are looking at US Shale as just flowing out of the ground and assuming that will be replicated globally. Not true. The non shale resources are ebbing fast (Venezuela others) . Eagle Ford and Bakken have peaked and the Permian has transport constraints. $80 bbl by fall. 2. Trump will devalue the dollar. The Fed knows they are trapped so the only way out is to talk "Goldilocks" but hum nominal GDP and hope for the best. Everybody is going to burn their currencies.
    • SS
      Steven S.
      11 April 2018 @ 21:35
      I agree with your points, Kenneth. I've found that the real value in Raoul's pieces are in presenting a thesis, showing detailed analyses across varied data sources (e.g., technical analysis, speculation levels, correlated indicators, sources of supply/demand, currency flows, etc.) supporting or refuting his thesis. Once that is laid out in a clear fashion, an investor can then build upon his work by adding patterns from additional data sources, arguing with his rationale, etc. to draw their own conclusions. That is, Raoul presents a scaffold of data and interpretation from which to one can build their own thesis. And this has infinitely more utility than spending time listening to one of the legions of thoughtless financial dolts spout off on their unsubstantiated predictions while projecting an air of certainty. In my view, he's a leader in showing us how to think about highly complex financial dynamics.
  • MS
    Matt S.
    5 April 2018 @ 21:24
    That was great! Didn't understand it, but it was great!
    • DC
      D C.
      10 April 2018 @ 18:46
      ...and think how impressive you will sound by parroting some key phrases at the next cocktail party!
  • HB
    Heini B.
    4 April 2018 @ 10:59
    hmm thinking TLT is a good way to position, div yield of 2.5% can cover some loss, already short DB and XOM with long dated puts. Will watch google and the AUD with keen interest, thanks Raoul for sharing some timely thoughts. It wont be fun when the world changes, employment prospects in the financial industry will suffer, so hope we all make some good money with these hedges.
    • KS
      Kathleen S.
      4 April 2018 @ 22:40
      Bonds and equities can both go down at same time --- that is not a guaranteed hedge -- listen to Julian Brigden (Raoul's partner in newsletter) he talks about this, also macro voices is a podcast that discusses this. Be careful.
    • HB
      Heini B.
      9 April 2018 @ 09:09
      Thanks Kathleen, agree with you too, my cash & physical gold positions are as large as my speculative book. I believe Raoul's world changing event will lead to a period of positive equity and bond market correlation so CAPM will be worse than useless.
  • CT
    Christopher T.
    7 April 2018 @ 04:09
    how long has Raoul been bearish the SPX/OIL?
    • XS
      Xin S.
      7 April 2018 @ 21:01
      he has been bullish on India Economy. but I never understand how a country's long term economy strong even the government does not respect the personal property right? how long you have to wait before the government declares they own everything?
  • SR
    Steve R.
    6 April 2018 @ 00:06
    In light of all this recent trade-war action/talk, it might be very useful to know what the potential outcomes are for global macro here, i.e. to join some of the dots, particularly with respect to core assets; USD, WTI, USB, EMs, DMs, Gold, etc.
  • CD
    Chris D.
    5 April 2018 @ 13:17
    I always love to hear Raoul talk. Always insightful and elegant. Always an instant like. However, we have heard the "dollar rip"-story before from Raoul and look how that played out (DXY, deflation, etc). And just because the speculative positioning looks stretched here in crude, doesn't mean that "everyone is wrong" and that the "boat will inevitably sink". As a contrarians contrarian, I firmly believe that the DXY will hit the 80-handle sometime this year and that crude (brent) will hit 80-90 dollars based on real market fundamentals (supply/demand, Petro Yuan, etc) and that gold will be well over 1400 dollars/oz around summer. Yeah, I know not a "sexy" story with fancy charts and overcomplicated LIBOR-OIS-spreads, etc. But for me, I just cannot buy the major "deflation"-story, since we are over 8 billion people competing for limited resources on a finite planet. And when you think of it, demographics also puts people out of the labor force and thus turns former productive individuals to consumption-only individuals. If you consume more than you produce - guess what - you get inflation (but who knows with the obfuscated CPI-LIE, right?)
    • DM
      Davis M.
      5 April 2018 @ 23:54
      Many will say the demographics are deflationary with the 10,000s boomers across the world retiring everyday. Sure, real estate/stocks may go down as they downsize and others cannot afford to buy, but boomers still need to eat, have shelter, and care. If they are not working (producing) and you have tight labor markets, this will be inflationary.
  • BP
    Besar P.
    5 April 2018 @ 23:27
    Indeed, seems like it could be the beginning of an inflection point. Some bond funds have already started to show negative YTD returns due to the increses in fed funds so that might cause a further financial condition tightening as people might start selling out of those funds as a behavioral effect. Probabbly US $ cash is a good bet now.
  • RD
    Robert D.
    5 April 2018 @ 21:48
    Raoul, always thought provoking with distinct action points!
  • BL
    Bruce L.
    5 April 2018 @ 13:51
    Raoul thought provoking ass always. Of note to me is that Russell Napier is now also signaling a high risk of dollar strength.
    • MS
      Matt S.
      5 April 2018 @ 21:24
      He's no ass, Bruce.
  • VK
    Vin K.
    5 April 2018 @ 18:59
    Thanks Raoul for such a pointed roundup, highlighting the current setup and the key variables across asset classes. Videos such as these make the price of the subscription worth it on their own. We are the average of 5 people/things we spend the most time with. RV is instrumental in single handedly spiking my average !
  • DB
    Don B.
    5 April 2018 @ 14:52
    A 10% rally in the USD takes it back to overhead resistance and the primary downtrend, Re-evaluate position size in PM's, watch stop levels in 10 years, and carry on being vigilant.
  • CW
    Christian W.
    5 April 2018 @ 10:50
    I do not see how Oil and equity market borth would crack here. Uaually an high oilprice puts preassure on the economy (eqity). However, oil is rather cheap here (historically and inflation adjusted speaking), so this cheap oil should be a stimulous for the equity markets. In my view, we will still need higher rates and oil prices before the bubble popps.
    • DR
      Daniel R.
      5 April 2018 @ 14:29
      It just depends what the drivers are. Growth can slow for other reasons than energy price (e.g. debt crisis), and that could send both lower.
  • MS
    Mark S.
    5 April 2018 @ 01:58
    Raoul, You did not mention Gold. My sense is Gold would be good to hold. If the dollar strengthens as you suggest, pressure on Gold would be offset by the thinking that the Fed needs to reverse action.
    • TS
      Tim S.
      5 April 2018 @ 13:26
      I think he made a very small *mini* reference at the end of a sentence discussing commodities given the number of gold bugs he may not have wanted to set up a red herring when his alert is systemic. Everything he laid out should bring thigs close to a correlation of one and everything may get hammered with a few opportunities for the quick. Julien Bridgen on Macrovision said he thinks gold may be tested a bit more (dollar shock) before continuing to rise. I am a gold bug and have my bets in place since Q2 2016 so the train wreck scenery will not change how I play this out. Wait for the train crash to slow down, hop off as best I can, assess the carnage, and then move forward fully trusting a sound asset - if AU moves up or down $500 it will be in the context of a once-in-a-5,000 yeard debt folly. The cleanest asset in an inflated basket.
  • DR
    Daren R.
    5 April 2018 @ 09:00
    Excellent summary. Three points regarding the synchronised global slowdown with Tech apparently leading the decline: 1.If expectations of EU QE unwind (repatriation of flows that went to dollar assets from EU QE) were behind weaker dollar last year, Europe’s more pronounced slowdown should result in a shelving of those expectations and help support dollar. 2.If China policy drove the last two synchronised global growth episodes, then should our eyes be on China’s next policy shift to mark a bottom. i.e China Bonds, Housing market and so real estate stocks? 3.For real economy fundamentals, should we be monitoring server demand (Google & Facebook ) and second tier commercial real estate (internet start ups), where as in 2000, an excessive demand spike crescendo gave way to weakness given too many "build it and they will come" malinvestments which caused defaults?
    • AM
      Andrew M.
      5 April 2018 @ 10:09
      All great points. FANG stocks are good risk indicators, and their inverse correlation with the is v. high. With regards to 1... You're right. I think Euro weakness could surprise. Recent inflation + employment numbers are okay, but ECB is stuck: raising rates will send Euro higher and put more stress on shaky PMIs. Europe is not as strong as people think, and Euro positioning (inc. dollar shorts) is extreme. Economic surprise indicators also show that there scope for downside risks in the coming months. Re. China. It will clearly slow, although at what pace is debatable. Official numbers look good, but other indicators such as yields and commodities show a wash-out could be on the way. More here that may interest: and China and Europe are linked at the hip too, so any weakness will effect one another. Europe, as much as China, has been instrumental in EM growth these past few years ($ weakness also means European banks are happy to fund $'s to China and EMs). But with Euro strength putting strain on their economies, that train looks to have come to an end!
    • AM
      Andrew M.
      5 April 2018 @ 10:11
      The European Economy - and even Germany - is simply not sturdy enough to sustain a strong Euro
  • AR
    Alex R.
    4 April 2018 @ 12:03
    Pal, how about every other comparable industrial? You never show a chart of HON. GE is a basket case, do some work on it before drawing erroneous macro conclusions.
    • AM
      Andrew M.
      5 April 2018 @ 09:09
      what? HON is down 12+% since Jan 26 - which may be soon come to be viewed as an inflection point for markets. Btw, we can add: Bloomberg Commodity Index is down for the year, industrial metals hammered (despite weak $), Dr. Copper has rolled over, and China looks to be slowing: Reflation narrative is not necessarily dead, but China and that EUR:USD cross (people are ignoring euro weakness and positioning) look vulnerable. He's right to tell people to watch - but not necessarily fade - the prevailing "global synchronised growth" narrative. Also, even if Libor-OIS spreads come in soon as Raoul suggests, it's still likely to expand later this year amid new UST issuance, while Libor will continue to rise. You can still have reflation and yet US zombie companies get wiped badly. That now seems inevitable whatever happens.
  • FR
    Frank R.
    5 April 2018 @ 05:10
    Raoul, If the price of oil and the dollar are crucial then this begs a petrodollar question, of more precisely a petroyuan question. How will an increasing use of yuan in global oil trade influence your thesis?
  • SS
    Steven S.
    5 April 2018 @ 04:59
    I felt compelled to add that, as an academic in a non-finance field, the tool I hold most dear is a skeptical disposition. Raoul uses well-reasoned arguments, supported by a wealth of evidence and appropriately interprets any findings based on a probabilistic framework. His approaches and thought processes certainly hold up to such skepticism (as does Steve Keen, Jim Grant and Grant Williams). This is such a refreshing change from the vast majority of CNBC contributors, financial advisors, stock brokers, wealth managers, et al. where arguments are made by authority, assertions are devoid of supporting evidence and logical inconsistencies abound.
  • SS
    Steven S.
    5 April 2018 @ 04:42
    We all owe you a debt of gratitude for your work, Raoul. This was simply brilliant. While watching, I felt somewhat akin to reading Descartes: Highly condensed, cogent and insightful. This is quite contrarian and both well-reasoned and understandably tempered.
  • LC
    Liliana C.
    5 April 2018 @ 04:33
    Thx Raoul 👍
  • DC
    Darrell C.
    5 April 2018 @ 02:06
    Interesting observations, but just too many moving parts to help in grasping this 2018 market. Jeff Gundlach’s comments on watching the 10yr, with 2.63% as the line in the sand, and also most interesting, tying in Bitcoin recent fall from highs, as an leading indicator, simpler and original....
  • SR
    Steve R.
    4 April 2018 @ 21:15
    Great update, thanks Raoul. Please keep doing these snapshot updates on a timely basis - much appreciated! After looking at today's market action though you do seem to have the habit of perfectly timing the bottom! :-) Julian Brigden has just tweeted for a potential "solid bounce" in the FANG stocks! On the issue of market positioning, I don't really buy into this argument as a reason to position a trade. Yes, Oil, USD, USBs all have huge one-sided positioning but that doesn't make them necessarily wrong.
    • RP
      Raoul P. | Founder
      4 April 2018 @ 22:32
      haha... yes, that can happen...but the point is not about if it breaks now or not, but we have clear lines in the sand and a framework to operate in. One of the possible outcomes is new highs in equities, but that in itself will be instructional when we see market leaders at that point. Overall, I think the underlying market structure is changing, but it will be unlikely to change in one day and in the video I mentioned that a bounce is most likely first.
  • GL
    G L.
    4 April 2018 @ 18:59
    Hi Raoul, Great video as always! Please could you elaborate a bit more on the link between DB and $ funding costs? Why is DB a proxy to global issues and why in particular should the price action of its stock be related to the inverse of the Libor-OIS spread? I know you previously mentioned your view that you think Germany will nationalise DB - do you still see that as a possibility. Thanks for your views, in advance!
    • GL
      G L.
      4 April 2018 @ 19:04
      Also, on OIS vs $ Libor spread: one factor in its rise is that bank CP supply has increased while demand for the same has waned through bank regulation. So in this case, yes, it looks like $ funding is getting tighter, but one would need further signals in the form of x-currency swap markets to corroborate. For now it seems that XCCY basis swap spreads are more or less behaving.
    • GL
      G L.
      4 April 2018 @ 19:06
      *demand for bank CP has waned through MM fund regulation, sorry, not bank regulation.
    • CT
      Christopher T.
      4 April 2018 @ 22:28
      spurious correlation.
  • BB
    Bjorn B.
    4 April 2018 @ 22:15
    If anyone is looking to short energy equities, market where stocks have fared the best by far over multiple timeframes from short, medium to long term is Norway. Offshore oil on steroids with negative real interest rates in the real economy forcing retail into equities. Difference between Norway and Brazil, where equity markets have been even stronger is real interest rates. In Norway its close to -1%, Brazil is probably large positive. If DXY rallies, oil gets crushed, OBX gets crushed. If anyone in interesting in knowing more, or Raoul getting the micro details on this premise, please let me know. Otherwise interesting take on the Google as 2nd der of Facebook. Suppose we get resolution on the 200D m.a for Google and the overall indices when Zuckenberg opens the kimono in front of Congress 11 April. Interesting to see the reaction function: whether market sells the rumor as he gets repented.
  • DS
    David S.
    4 April 2018 @ 22:00
    Thanks. Keep updating often. What is important to you always makes me think. "Markets Breaking Points" is a great title. From your history, high risk breaking points are detectable. The major problem with predicting market, however, are the effects of major non-investor intervention - central banks, governments, politics and elections positioning. Each one can markedly change the investing assumptions. China bailing out its banks, China possibility of selling US Treasuries, trumped up trade wars, China buy oil in yuan, central banks printing money and then reducing balances. All these and more problems make predicting the market almost impossible. DLS
  • JH
    Jesse H.
    4 April 2018 @ 21:50
  • JH
    Jesse H.
    4 April 2018 @ 21:50
    Good video from Raoul as usual, but there are a lot of assumptions he is making that need to be unpacked further. I can see a scenario of stagflation even as or more likely than the scenario he is pre
  • DB
    Don B.
    4 April 2018 @ 19:34
    So IF we get a spike in DXY, do we also then see a wipe out in PM's? Spec silver shorts are also at all time highs.
  • GS
    George S.
    4 April 2018 @ 17:43
    A fantastic run around the world! Great video.
  • RA
    Robert A.
    4 April 2018 @ 17:36
    Point taken and Red Alert noted. Vintage RV—timely, concise, well reasoned thesis from a Guest (if you can call the CEO and co Founder of RV a “guest”) that we would never have access to absent RV!
  • JM
    James M.
    4 April 2018 @ 15:27
    Certainly there are many moving parts to keep an eye on. One thing which was not mentioned is the geopolitical events which, I have to believe, will have a huge effect on the world economy and markets. I think there is much more to be concerned with other than just trade wars. I almost think we have a put under the oil market with Trump's upcoming decision about the Iran Nuclear deal possibly coming off the table in May. I see all the reasons to be cautious oil, but I also fear we could see a real spike if the deal falls apart and we get new saber rattling or worse.
  • LA
    Linda A.
    4 April 2018 @ 14:46
    For me LIBOR, interest rates are key. LIBOR rates are shooting up which makes it more expensive for co's to borrow & play their buy-back game & affects their m&a plans. I am bearish equities, long vixy from Feb, long the dollar, long pm which is contrary to the dollar thesis. RP- u are one of the few people mentioning LIBOR but that is a primary driver.
  • DL
    Dan L.
    4 April 2018 @ 14:26
    Currently on DEFCON 3 moving to DEFCON 2 gentlemen. Strap in.
  • TJ
    Terry J.
    4 April 2018 @ 13:50
    Very timely update Raoul, which has helped reassure me on much of my own thinking. I must confess I have not bought the inflationary / reflationary story and am surprised so many eminent market analysts and investors have. I suspect the deflationary winter has years to run, until either the huge weight of debt causes a monetary reset, or there is some sort of debt jubilee which is a variation of the same thing I guess. While I continue to favour long Treasuries, I have no idea which direction the $ or equity markets are headed, although the Fed and its clueless monetary policy seems hellbent on bringing on the next recession / market crash sooner rather than later.
  • YB
    Yuriy B.
    4 April 2018 @ 13:42
    Timely and thoughtful insight, thanks Raoul!
  • RP
    Roberto P.
    4 April 2018 @ 13:40
    Raoul, you show speculative position in oil, usd that are very elevated. But it would be interesting to see for example in oil, the value of the short divided by global gdp or the value of global oil output. Clearly the size of the global economy is very different today than in 1998 or 2008. So this historic positioning maybe are not that elevated.
  • DF
    Dominic F.
    4 April 2018 @ 13:21
    It sounds like the Make America Great Again plan consists largely of making the rest of the world weak again. #DollarWeapon
  • MT
    Mike T.
    4 April 2018 @ 13:04
    Raoul is always worth listening too and this vid is as always stimulating. I would suggest it's also possible to get a quick handle on Global Macro by looking at the YoY (I don't pay specific attention to Month on Month, or even QoQ) rate of change in GDP and Inflation around the world i.e. is growth and inflation accelerating or decelerating? I don't have access to a Bloomberg so I have to use . Pick almost any country or region of the World and you will see pretty much the same story everywhere. Growth is decelerating YoY and inflation, particularity in Europe also decelerating YoY. Next thing I look at, Consumer sentiment around the world with a high correlation to Equity Markets is also slowing. Finally I look at earnings growth on a country wide basis, which is where the US is of particular interest, by rewinding back to Q1 2017 when the US saw a huge jump in earnings growth propelling last years US Equity Bull Market, now fast forward to present day and US Q1 2018 earnings season is about to be reported and this year's Q1 YoY comparison with same time last year will be *extremely difficult' in comparison to beat.
  • SB
    S. B.
    4 April 2018 @ 12:19
    Raoul has valid points, but I expect a serious (2-3 month) bounce first, probably extending above the previous top.
  • PB
    Pieter B.
    4 April 2018 @ 11:16
    Excellent video Raoul! Massive thanks for explaining global macro!