KIRIL SOKOLOFF: But the excesses are so great that we get desensitized. And what would had been a single at the last cycle peak, this cycle peak, we're just okay, so it's another crazy excess. And I worry about people who bought bonds that didn't know what they bought, or that people who bought index funds who didn't know what they bought. And the heroes in the boom become the villains in the bust.

RAOUL PAL: When I got a big question in my mind, there's one person I really want to speak to. So, when I started developing this idea about thinking there's a recession coming, I always thought, I wonder what Kiril Sokoloff thinks. Kiril's a bit of a mentor for me, he really is a legend within our industry. And I don't use that word lightly. He knows everybody there is to know. And he's incredibly well-respected. And I've taken the long trip out from New York, up to the Adirondacks to Kiril's house on the lake here to come and sit down, spend some proper time with him to pick his incredible mind.

Kiril, 18 months since we actually got together on camera, and started to talk about things. And I've been thinking of something that I'm seeing in the data and the research that I'm looking at that I really want to pick your brains on, because I really respect how you think about things. And so, my hypothesis is that we're looking potentially likely to be going into recession, I think the global situation is more concerning than most people think it is. Even today, we've had Jerome Powell indicating that they're going to cut rates, but nobody really believes that maybe the cycle's ended. And I already think it is. But I wanted to know, what are you thinking?

KIRIL SOKOLOFF: Well, the great question of our time is whether this is a mid-cycle correction, like '95 or '98, with the Fed easing into a recovery, or whether it's recession, like 1989, 2001, or 2007. And I have a very hard time seeing that this is '95, and I can go into why I don't think it is. I'm totally agnostic, I'll let the market decide for me. But all the evidence on economic data and above all, confidence and trust. Because this is really a confidence and trust issue. How are you going to put confidence and trust back into the picture? You've done a savage cutting on that. I cannot believe it's possible for trust to be restored in the next year and a half. Just impossible.

RAOUL PAL: So, how do you rebuild trust?

KIRIL SOKOLOFF: It takes years, decades, it's extremely significant.

RAOUL PAL: So, your sense is we're maybe in a cynical turning point, but we're actually, this is a secular turning point as well in many respects?

KIRIL SOKOLOFF: It could be. If the US goes for protectionism and the rest of the world were to follow, it definitely would be a secular turning point. If the US goes for protectionism, and the rest of world doesn't follow, you won't be quite as bad. But then you have the whole cycle of wealth distribution coming. And how's that going to play out? And if Trump doesn't get reelected, what then happens to all of the deregulation and tax cut, all the things he did to get the stock market up? Will buybacks be outlawed? There's so many things that could happen that are significant watershed event that the market isn't paying any attention to but it's a significant risk.

And then, of course, you have what I call the burden of the debt, which might be the reason why it's so hard to get growth. And the last time we tried to do economic growth with more debt, solving the problem of debt with more debt, was in the 1920s. And we know how that ended up. So, we got 250 trillion and counting of global debt, which is more than three times global GDP, we've added debt at the rate of depending on the country one and a half or two times more than nominal GDP in the last 10 years. So, we've leveraged up the system. And maybe the burden of debt is too great to grow. And even though interest rates are low, a lot of the debt was used for nonproductive purposes. So, it's not generating any cash flow.

And then of course, you have demographics, which into recently, the US was a hopeful spot, and now, it's almost as bad as others with the population growing at the lowest rate in 8 years this last year. So, if in fact, it is beginning of a recession that has immense implications, which is why I'm glad you asked me the question. And the first is, will the recession be over by the election? And the second is how will this impact China-US trade relations? It is very, very significant.

So, my hunch is that President Trump wants to run on tariffs, and wants to run on protectionism and taking on China. And even if the economy were strong, he would do that. But if the economy gets weaker recession, he will double down. He's totally not going to say I'm in favor of free trade and take all the tariffs everywhere. It's not going to happen.

RAOUL PAL: The tariffs aren't going away.

KIRIL SOKOLOFF: Yeah. So, that means protectionism. And then the next question is,