Nightmare Scenario Building in Europe

Featuring Raoul Pal

Real Vision co-founder Raoul Pal outlines the potential endgame for Europe’s banks, with a special global update from Grand Cayman, questioning the Fed’s relevance and deeper troubles at the BoJ.

Published on
5 October, 2016
Macro, Global Outlook, Volatility
36 minutes
Asset class
Bonds/Rates/Credit, Currencies, Equities


  • DY

    Damian Y.

    5 1 2017 12:46

    1       0

    Two of the best finance programs. Real Vision and Macro Voices. Thank you both for a great interview.

  • DS

    David S.

    21 10 2016 18:02

    2       0

    From a layman's point of view, it seems to me that most of the increase in the money supply ended up in financial institutions, pension funds etc. These funds plus governments and additional leverage are focused on investing in financial assets not consumption. The major inflation that everyone is looking can be seen in the price of financial assets. The current high p/e ratios merely reflect far to much money chasing a reducing number of financial assets. When risk is not merely measured by the VIX, but with the probability of the loss of capital, p/e ratio should revert to the mean and the market will correct. Of course there are many other reasons that the market will correct. This is just one piece of the puzzle. Who knows how many other shores are ready to fall.

  • WS

    Wm S.

    21 10 2016 02:50

    0       0

    More, much more Erik Townsend please. I was a Macro Voices listener and then RVTV showed up. Both are must-listen things for me. Congratulations to both for producing worthwhile stuff. I hope Mr. Townsend finds a place at RVTV, and vice versa..

  • PJ

    Piotr J.

    19 10 2016 23:51

    0       0

    Fantastic interview! Unfortunately I have my current account in DB. Does somebody know a German bank that will be the least affected by the next EU banking crisis?

  • AD

    Anthony D.

    16 10 2016 14:32

    1       0

    Raoul. Thank you again for your insights. As I heard you talk of simply holding your dollars as cash in a bank, I wondered how you might protect this asset. Do you use a custodial account?

  • JC

    John C.

    15 10 2016 06:21

    0       0

    Great interview thanks Raoul!

  • Sv

    Sid v.

    13 10 2016 19:47

    0       0

    So enjoyable and informative, thank you

  • CS

    Chris S.

    12 10 2016 19:50

    1       0

    On the short VIX future volume issue: for every short position there is a long position. what matters is, who is massively short and who is massively long?

  • MC

    Michael C.

    12 10 2016 03:39

    1       0

    One of the best so far. the questions and answers were dealt with brilliantly. Came away quite scared (seems to be a pattern on RV).

  • KV

    Kuba V.

    11 10 2016 17:58

    0       0

    Raoul was brilliant like always, and great work from Erik ;-)

  • mE

    magnus E.

    11 10 2016 12:44

    0       0


  • EM

    Elvijs M.

    11 10 2016 12:04

    0       0

    Wow, Eric and Raoul on the same screen, great job RVTV!

  • RB

    Ros B.

    10 10 2016 21:47

    1       0

    My two favs who help cement ideas. We've sold a business so funds to invest and they both feel a part of our journey into a new world. Go MacroVoices and Real Vision.

  • AL

    Andrew L.

    9 10 2016 21:41

    5       0

    Great interview, would love to see more of Eric Townsend, big fan of his podcast especially his coverage of the oil market.

  • JM

    Judith M.

    9 10 2016 03:32

    5       0

    Clarity, coherence, warmth and affability. Great interviewee and interviewer. Thank you for taking the occasional step back to explain concepts.

  • FW

    Francis W.

    8 10 2016 17:54

    8       0

    Raoul always great, and outstanding work by Eric, asking every question I wanted the answer to.

  • BJ

    Bruce J.

    8 10 2016 16:17

    1       0

    Bruce J.

    Excellent job on both sides of the interview.

  • SM

    Sam M.

    8 10 2016 14:55

    4       0

    Out of everyone we've seen I still like to hear from Raoul the most!

  • GS

    Greg S.

    8 10 2016 02:49

    4       0

    Good to see Raoul the other side of the interview. He holds up as well as those he interviews.

  • JE

    Joseph E.

    8 10 2016 02:23

    7       0

    Townsend did a great job.

  • JB

    Jose B.

    7 10 2016 21:53

    1       0

    Great Interview, Raoul is definitely a StockMarket Jedi

  • LB

    Lloyd B.

    7 10 2016 18:38

    3       0

    Great interview! Awesome to get a follow up on an also great Macro Voices interview with Raoul. Really happy to see Erik on here!

  • ET

    Erik T.

    7 10 2016 18:03

    46       1

    Thanks so much to all the kind people who have said they enjoyed my participation (as interviewer) in this video. Raoul's brilliance is a tough act to follow, so I'm quite flattered that so many of you mentioned my participation in your comments. FYI, Raoul is just as fascinating to get to know personally as he is when talking macro. It remains to be seen how much more additional opportunity I'll be given to do interviews for RVTV, but I promise that to whatever extent I have any influence, I'll try to get Raoul on the screen more frequently! -Erik Townsend

  • SD

    Sebastien D.

    7 10 2016 17:02

    13       0

    Just to support Erik as an interviewer, great voice and he know how to listen answers.

  • SS

    Sam S.

    7 10 2016 16:28

    1       0

    R Pal-----nobody does it better-------How's the weather in Cayman Islands? All the Best!

  • EB


    7 10 2016 09:51

    1       0

    I really want a printed copy of this interview. Why only an audio download?

  • JH

    Joe H.

    7 10 2016 09:40

    0       0

    Great interview. One question about rates over the next few years....if the 10 year US treasury ratedoes go down which seems likely, could libor rates go up because of the dollar shortages mentioned?

  • DS

    Dustin S.

    7 10 2016 09:24

    12       0

    Very good interview. Raoul explains things in a very concise, understandable way.

    However, I can't resist chiming in on DB. One of the other posters highlighted the difference between gross and net derivatives exposure. While he is right that many of the contracts do offset, each netted derivative requires DB to assume the credit risk from 2 different counterparties. Because of this, the total gross notional ABSOLUTELY matters. Derivatives still carry credit risk and if even a small amount of the exposure faces poor quality creditors it can create a major problem.

    Unfortunately for DB the derivatives book is only one of many major issues. They are also much more exposed to Level 3 assets than their peers. They haven't completed any meaningful restructuring. They have 3 major fines to pay (RMBS, Russia, FX). They are trying to sell Postbank which no one wants to buy. They have sold Hua Xia, but can't get the money out of China. They have a capital shortfall of 9.5 billion with a very low market cap. And to top it off, they make very little money and deliver investors very low ROE.

    This one isn't going to be "OK".

  • XZ

    Xriva Z.

    7 10 2016 02:46

    7       0

    Great interview, and great to see Erik of MacroVoices Podcast fame !

  • JD

    Josh D.

    7 10 2016 02:01

    1       2

    I like short oil long gold even better than long dollar long gold

  • jm

    jim m.

    7 10 2016 01:53

    1       0

    Raoul i am most interested in the US dollar. your view is that due to recession, 10 T US dollar corporate EM exposure, that US dollar goes up. Up against which currencies? The US dollar remains very strong again st Rupee, Rupia, Peso, Real, Ruble but in my view, weak against yen, euro, aussie, kiwi. it would be helpful to me/us for you to be specific about the currencies you are referencing when you discuss us dollar. thanks for the thoughtful approach to macro. i recommend you bring back more frequently, burbank, bass. try to get druckenmiller, grantham, john hussman.

  • TS

    Todd S.

    7 10 2016 00:35

    8       0

    Excellent job Erik, Raul - Appreciate the insight.

  • LP

    Lari P.

    6 10 2016 20:59

    3       2

    'DB big derivative exposure' is just the headline number. It is important to remember that the EUR46Tn number quoted in the media is the gross notional derivative exposure, which is by no means a reflection of the credit and market risk the bank is running. You have to look at the present value of future cash flows owned to DB in order to gauge how much credit risk the bank is running. Also, there is a netting and collateral impact as well that should be taken into account, i.e. ISDA agreements that allow netting in the OTC space plus CSA agreement that govern collateral exchange. DB is saying that the net derivate exposure is around EUR41bn (less than 0.1% of the headline number...) Finally, the net exposure is further reduced via active exposure management, i.e. the bank hedges its net open exposure in the market by entering into offsetting trades with other market participants.

  • RM

    Roberto M.

    6 10 2016 19:43

    2       0

    Awesome, more commentary like this is very appreciated. Great to hear more from you and Grant not just interviewees!

  • EL

    Elizabeth L.

    6 10 2016 16:33

    24       1

    I find it quite valuable that RV does pieces that respond to the current market when big events, i.e. Brett and now the banks as DB are potentially causing major market shifts. Raoul would be great to have this interview with Erik as a quarterly event. Or as a piece done in response to major market events. By the way, I am learning from you and Grant in ways I can't even imagine other sources making available.

  • MB

    Matthias B.

    6 10 2016 10:37

    2       0

    provide explanations why the macro world appears so whacky. any chance to interview an expert familiar with the gold lease and rehypothecation market? tks!

  • MB

    Matthias B.

    6 10 2016 10:35

    2       0

    I thought that the explanations on the Eur$ mkt and vola trade by pension schemes were worth the subs fee alone. this is what RVTv is so great about - not bruuhhaying short term trade ideas but provid

  • kv

    keith v.

    6 10 2016 10:24

    5       0

    Great to see Erik on Realvision on an all encompassing episode.

  • JS

    John S.

    6 10 2016 09:52

    3       0

    Interesting interview good job Erik and Rahul.
    Australian gold miners could be a leveraged play on long dollar and gold?

  • RP

    Ron P.

    6 10 2016 06:46

    2       0


  • JH

    John H.

    6 10 2016 05:52

    3       0

    so glad to hear about the change in correlation for USD and Au. Bob Hoye is the only other guy who talks about it, USD bull AND Au bull. This week's takedown in gold seems a bit manufactured. backing up the truck soon...

  • JH

    Joel H.

    6 10 2016 05:20

    1       0

    Really enjoyed this, great info.

  • SS

    Sean S.

    6 10 2016 03:11

    6       0

    Whoa Erik showed up! Thank you both for the tremendous education you provide.

  • TM

    The-First-James M.

    6 10 2016 02:54

    15       0

    I second EMIL K's comment about Macrovoices. Probably one of the best free Macro interview resources on the internet. The research roundup email they publish to subscribers each week is also extremely worthwhile. Many thanks to Erik, Nathan and Aaron for their hard work in putting all this together.

  • js

    jacob s.

    6 10 2016 02:41

    2       0

    Could you provide us with a subscriber growth rate?

  • SR

    Steve R.

    6 10 2016 00:53

    3       0

    Great interview! One question I have Raoul - do you not think that Central Banks around the world are coordinating various 'actions' aimed at keeping asset prices (via controlling the USD) within the narrow bands you mentioned? After all its in all their global interests to keep everything as stable as possible so why can they not just keep doing the same for years and years?

  • tW

    tgwtom W.

    5 10 2016 23:51

    3       0

    Great to see Erik aboard.

  • MR

    Mark R.

    5 10 2016 21:41

    1       0

    interesting times out there for the macro investor for sure, wacky world makes for interesting mkt moves

  • IJ

    Ian J.

    5 10 2016 21:05

    5       0

    The European banking issue has little to do with DOJ fines. After the 2011/2012 European banking crisis, banks, with the blessing of regulators no doubt, papered over their gaping balance sheet holes by tweaking RWA models. They kicked the can hoping that the Global Economy and Eurodollar wholesale banking system would recover to the pre-08 baseline. The bill is coming due

  • M

    Mark .

    5 10 2016 20:34

    3       0

    Wonderful. I am an average guy that barely got a finance degree at an easy college and I am getting this stuff. Excellent.

  • JM

    James M.

    5 10 2016 20:09

    9       0

    Excellent delivery of his well explained point of view as always. I rate Raoul Pal in the same category as Jeremy Grantham. Be good to see an interview with them both. Any chance RV?

  • VP

    Vincent P.

    5 10 2016 17:17

    9       0

    This discussion was a real boost given the mixed impressions of recent interviews. Raoul, you are the Man! Grant too of course!!

  • LC

    Liliana C.

    5 10 2016 16:46

    7       0

    Thx Raoul!

  • B

    Bojo .

    5 10 2016 16:39

    9       0

    Brilliant, Raoul, as always. Here in Brussels, the Commission and everybody still want ''more Europe'', and we had hundreds of meetings to put bail-in rules together. But probably now national politicians will go local, and the EU will be increasingly...ignored. At any rate, after a certain point, things start to take a life of their own.

  • BF

    Bruce F.

    5 10 2016 16:18

    10       0


  • MC

    Matthew C.

    5 10 2016 16:15

    9       0

    Great interview with some good explanations behind the topics. Would love to see more educational type videos from RV - so here is a suggestion Raoul - Kyle thinks the Yuan deval is inevitable and will be carnage, HH thinks the carnage would be too much - so at least they both agree on the carnage part, maybe you could explain how that carnage is likely to play out ??

  • GH

    Gary H.

    5 10 2016 15:34

    2       0

    Was just thinking this morning I would like to hear something up to date from Raoul and voila. Thanks

  • Nv

    Nick v.

    5 10 2016 15:29

    36       3

    I understand everyone at RealTV is bullish bonds - fair enough. You may want to consider the following: 1.) IF oil is near current spot of 49 in January, CPI will almost double in January due to base effects 2. Medicare inflation is multiples above CPI, wages are rising with JPM, SBUX increases happening this month 3. IF Donald Trump is elected as president, bonds will break down. Price, not yield
    The starting conditions in bonds are: 1. EVERYONE is bullish, EVERYONE is long, NO-ONE is old enough to have seen a bond bear market, DURATION is highest I can remember ever, EVERYONE thinks its about the FED. I suspect we can start ignoring them as their creditibility approaches zero.
    Maybe long bonds is the ultimate pennies in front of trains position.

  • EK

    Emil K.

    5 10 2016 15:22

    32       0

    I would like to recommend to anyone who has not listened to the MacroVoices podcast to give it a try. It is professional, educational, informative. Comes out once a week with a feature guest as well as thoughts from Eric (the interviewer you see in this video). Great guests, great content, informative good stuff. Give it a shot, I doubt you will be disappointed:

  • LV

    Luís V.

    5 10 2016 15:05

    16       0

    Nice interview. Loved the personal touch put through the arguments made by Raoul. Excellent ideas and correlations. A bit soft on the KBass vs. HHendry opposing yuan views. Nothing wrong to disagree.
    That could be the RV tv motto, right? Congrats to ETownsend too.

  • MS

    Mark S.

    5 10 2016 14:02

    48       0

    Excellent discussion and summary of where we are now. My two big takeaways: 1) Pay attention to the time horizon when listening to any macro discussion; 2) Keep a sharp eye out for signs of the next recession as that will be the triggering event.