The Reset II

Featuring Raoul Pal, Grant Williams

Raoul Pal, publisher of The Global Macro Investor investment letter, brings the highly requested follow-up to his original 2014 piece in The Reset II.

In this discussion, Raoul explains why several European bank stocks may be facing Death By CoCo Bond, the black holes of illiquidity formed by QE, wealth preservation in a NIRP world, and the probabilistic outcomes of China, the U.S., Europe, and Japan after the next global crisis.

Published on
19 February, 2016
Topic
Recession, Financial System, Macro
Duration
45 minutes
Asset class
Equities, Currencies, Bonds/Rates/Credit
Rating
38

Comments

  • PJ

    Peter J.

    1 2 2018 10:23

    0       0

    Would be great to get a follow up to this debate as the fundamentals haven't changed but the story has moved on.

  • JV

    Jonas V.

    15 4 2017 14:52

    0       0

    What impact will helicopter money have on this?

  • js

    jag s.

    16 2 2017 17:22

    6       2

    A year later. Interest are going up (not negative), regulations to limit banks (dodd/franks) is on the verge of being removed. How does that modulate your probable outcomes? and recommended actions?

  • JF

    John F.

    5 10 2016 23:41

    2       0

    The 10-year deflationary period of the commodity cycle is necessary because the alternative is endless hyper-inflation. Platinum had risen so high in price that it made it impossible to manufacture Fuel Cells. An example of a technology destined for future implementation. The management of that deflation is marked by certain characteristics in preparation for the 10-years following which I will call the Equilibrium Commodity Years:
    1. The spread between currencies of the SDR special drawing rights countries must be lined-up so they will collectively decline when they import the raw materials from the emerging markets and the commodity exporting countries in the expansion ahead. After the Bank Crisis, we saw the sharing of risk internationally to keep SDR currencies collectively within a workable range. The Bank Crisis QE medication, undermined the policy of increasing the money supply 4% per year to maximize expansion and minimize contraction – see Burns & Mitchell. QE gave us maximized contraction. In addition, the Fed is paying the Banks not to loan money which would itself be commodity inflationary. We are rapidly approaching that period at which Banks will be allowed to loan money and the Fed will apply soft breaks if the rate of expansion rises too fast.
    2. Commodity exporting countries’ currencies must be reset to the lower end of their operating range, so they can rise relative to the importing countries whose currencies will then decline. This places stress on these countries in efforts to pay its debts to the SDR nations. In the late 1980’s we eventually saw BAC write-off the debts of South American countries. My gauge of measure for a future target, is the return of the AUD/USD to $0.65 or lower, which I expect in the 1st Qtr of 2017.

  • TW

    Tom W.

    7 9 2016 18:33

    2       0

    RAUL, how do you anticipate non-financial, corporate bonds planned to be held to maturity will do? Are these included in "sell everything" recommendation from the Big Guys? If I'm holding non-financial stock - gold miners, industrials, Healthcare REITs -- my stock price may be depressed for awhile, but if the company stays solvent, it will eventually be okay... Light bulb just lit... but if they need credit and can't get it, solvency may be difficult, causing bankruptcy, wiping out stock, haircut or worse for bonds... oh shit! Am I on the right track here? Thank you! BTW, I am really enjoying -- well, learning -- from RVTV.

  • DC

    DS C.

    31 7 2016 09:34

    1       0

    There is the alternative, positive, called cow protection. Focused on in the presentations of Mr. Dan Rousse, Dhanesvara dasa. http://www.spiritual-economics.com/
    A refreshing view of the purposes and means of achieving and sustaining economic development.

  • MN

    Mark N.

    10 7 2016 00:58

    1       0

    Brilliant. Been calling this unraveling for 5 years. Just found this channel. Basically the Emperor has no clothes.

  • KL

    Ken L.

    7 7 2016 18:26

    0       0

    wouldn't unwinding the Fed's treasury holdings prevent the yield from going lower

  • EL

    Eric L.

    2 7 2016 13:43

    3       0

    Going forward it will be more of the same. Gains reward the few who take the bets, and losses are shoved into the tax payer. In the end, it's hyper inflation and war. Only way to break the downward cycle is to have a technological break through so massive it is beyond comprehension or imagination.

  • JW

    Julie W.

    1 7 2016 13:55

    2       0

    A debt jubilee.

  • JW

    Julie W.

    1 7 2016 13:46

    1       0

    Asset Management is a class of its own and if you are not careful, it will be commodotized again. I worked for a commercial development company that built skyscrapers and regional office parks, large shopping malls, large apartment complexes, when the Savings & Loan - RTC bail out occurred. They went from being developers to asset managers overnight. This is the same thing, except it is the Central Banks that need bailing out. Much larger scale. Where do you send the debt?

  • BP

    Bill P.

    27 6 2016 07:40

    3       0

    Reset II is The Best of the Best. Chock full of good ideas and insights and predictions, ending with several good suggestions for investment ideas. Brilliant.

  • ec

    ed c.

    23 6 2016 13:06

    0       0

    k

  • CC

    Cleve C.

    1 6 2016 02:32

    0       0

    Crazy Insightful! Want to hear more and learn more as to how best to prepare for global financial chaos.

  • DS

    David S.

    26 5 2016 00:49

    0       0

    Great-Watched 3 times. Gold should go up in cashless society. Gov'ts will collect more taxes, illegal economy will suffer. When Euro came out, millions in old currencies surfaced. I am not pro or con

  • BB

    Benjamin B.

    7 3 2016 11:29

    1       0

    Great succinct and clear summary of where we are - from someone thats been doing global macro for a while. I totally concur that the risks are very asymmetrical at the moment. Benjamin

  • BC

    Ben1 C.

    2 3 2016 17:15

    0       0

    I liked it

  • SB

    Stewart B.

    1 3 2016 07:56

    0       0

    So many thoughts. I sometimes wonder if the QE purchase of debt then debt cancellation is part of the Central Bankers' private agenda.

  • AE

    Alex E.

    28 2 2016 07:36

    1       0

    As always, excellent material from two master economists. Will be interesting 2 year period! Got my S&P 500 puts in, waiting for the crash!!!

  • JF

    Jonathan F.

    27 2 2016 03:26

    0       0

    Last time institutions with illiquid assets couldn't find buyers, the govt stepped in. I'd guess that is Blackrock's bet. But can the govt step in again?

  • BB

    Bill B.

    25 2 2016 18:51

    0       0

    Byron King & Jim Rickards are 2 people that have been talking about cyber war.

  • us

    urska s.

    25 2 2016 14:38

    1       1

    "Keynes" failed, so why is "Hayek" so bad? Stop cheerleading and get out one the sun you Brits are way too bleak. Even if ur right, there are many ++ globally. Concentrate on those for once. PS:Xanax

  • DM

    Dennis M.

    24 2 2016 21:46

    1       0

    You two are excellent. Very clear and actionable observations. Subscription price is worth every penny.

  • GP

    Greg P.

    24 2 2016 21:27

    1       0

    Very well done.Liked the term "the big ugly".Sort of what happens with cosmetic surgery.At first pretty good.Eventually looks hideous when over done.CBs have over done their financial surgery,IMO.

  • TB

    Thomas B.

    24 2 2016 14:40

    0       0

    You guys are just invaluable!
    Thanks for everthing!
    Thomas

  • RT

    ROB T.

    24 2 2016 12:20

    0       0

    New to this game but RV is definitely helping me stay realistic with the Macro outlook and try not get sucked up into the noise.

    Would be really interested in Raoul doing a Business Cycle Video

  • RP

    Raoul P.

    23 2 2016 21:37

    6       0

    Thanks for the amazing feedback! Yes, sorry I meant Blackstone but Blackrock is an equally bad risk for different reasons (ETF illiquidity).

  • BM

    Bjorn M.

    23 2 2016 10:42

    1       0

    Thank you Heini. It's clear now :)
    Conversion to shares = more shares = dilution = share price down = must sell short stock to hedge.

  • jm

    jim m.

    23 2 2016 07:50

    0       0

    Raoul, in combination with Schulte, provide an overlapping view of persistent commodity deflation, credit bubble burst, resulting in bank stress, low rates, low growth, strong dollar. Probable...

  • CC

    Charles C.

    23 2 2016 00:34

    1       0

    very insightful even if somewhat frightening. this is why i have Real Vision.

  • CG

    Colin G.

    22 2 2016 23:03

    0       0

    Thanks Grant and Raoul for another illuminating discussion. Would like to hear more on managing counter-party risk when the financial system is in such a perilous state (other than sell everything!).

  • JS

    Jon S.

    22 2 2016 19:55

    3       0

    Best explanation of the "Big ugly" on the horizon I've heard. Brilliant! CS and DB were huge issuers of the dreaded coco bonds,as Raoul pointed out it's imperative to watch the Euro financials

  • RO

    Rinaldo O.

    22 2 2016 19:45

    3       0

    It's blackstone not blackrock that Raoul keeps wanting to refer to. Still blackrock is going to have fun too given some of their illiquid etfs...

  • HB

    Heini B.

    22 2 2016 13:37

    3       0

    Bjorn, look at "Death Spiral" converts to better understand. The people who sold coco's will need to sell stock to hedge.

  • BM

    Bjorn M.

    22 2 2016 09:18

    1       0

    Raoul said that if coco's get to their strike, they become equity and ppl that own them woud need to sell stock. I don't get it. That causes the coco to decline more, as you reduce T1 capital, right?

  • My

    Mun y.

    22 2 2016 06:52

    0       0

    Top notch piece. Always a pleasure hearing from Raoul and Grant and their view on what is down the road.

  • AC

    Andrew C.

    22 2 2016 04:47

    1       1

    "The recession we had to have"; Paul Keating. Who has his balls today?

  • LA

    Linda A.

    22 2 2016 02:03

    1       0

    Kudos to Raoul for making the connection: oil to financials. Per Bloomberg there are $3.6 trillion in energy loans. Grant - u ask all the right questions. Brilliant interview.

  • VK

    Vinay K.

    21 2 2016 23:45

    0       1

    same sh#@ but so good to hear again .... long gdx, short spy, long tlt. lets go market crash.

  • LL

    Lendry L.

    21 2 2016 22:02

    0       0

    Superb ! Just maybe a small query..blackrock or blackstone?

  • AW

    Anthony W.

    21 2 2016 21:17

    1       0

    Raoul is a brilliant mind and has great knowledge which is articulated in a succinct and comprehensible way. Great stuff!

  • DT

    Dmitry T.

    21 2 2016 16:44

    0       0

    Great conversation! Question - would the banks go under just because the share price is under pressure? If this move down is triggered by forced selling share price doesn't point to bankruptcy yet

  • CR

    Carl R.

    21 2 2016 10:20

    0       0

    Outstanding!!

  • T.

    Tom ..

    21 2 2016 08:12

    0       0

    So if the Japan "big ugly" comes to pass, how does that play out? Where's the USD/JPY go? Superb video... Many thanks

  • g

    george .

    21 2 2016 04:53

    3       0

    40% cash, 40% precious metals, and 20% energy. conservative but i must be.

  • KS

    Kathleen S.

    21 2 2016 00:41

    3       0

    Personal debt at record highs, thus people unable or afraid to spend (job insecurity), thus giving QE to everyone that must be used to pay down debt would free things up - next step serious reform.

  • JO

    John O.

    21 2 2016 00:09

    3       0

    Raoul you the man!

  • AG

    Alex G.

    21 2 2016 00:03

    7       0

    Milton should have come in at the end with the his the "the truth hurts" line

  • FL

    Frank L.

    20 2 2016 22:46

    1       0

    Thank you!

  • TM

    Todd M.

    20 2 2016 21:42

    2       0

    Elegantly and beautifully presented. One nit - I think you meant Blackstone near end but said Blackrock. e.g. the largest owner of US housing. Bravo!

  • AS

    Andrew S.

    20 2 2016 17:12

    4       1

    Fantastic conversation. This is what I subscribe for. One critical observation for Raoul, knowing what you know and having access to the resources you do, crazy to think you don't have your gold yet.

  • lb

    luigi b.

    20 2 2016 15:19

    0       0

    Wonderful! FYI if I am correct China Money Velocity is 0.5

  • KP

    Kurt P.

    20 2 2016 13:41

    2       0

    RP/GW another fantastic discussion. Always providing valuable insight. So bottom line for the moment; LONG the GLD, GDX and the TLT vs SHORT EEM, Euro Banks, BLK, Yuan, and US Insurance Co's

  • HB

    Herbert B.

    20 2 2016 11:48

    5       0

    So being long dollar and short banks should save the bill, unless the governments takes it all away through some sort of taxes when cash is banned. Nice outlook and an awesome discussion. Great piece!

  • CL

    Charl L.

    20 2 2016 11:07

    4       0

    Like they say :"You have been warned"

  • E

    Erik .

    20 2 2016 09:52

    3       0

    There's a reason Stanley Fischer, the BIS and Bill White have been talking nonstop about shadow banking recently. Pippa must come prepared to SA for questions on this topic! Very good insights. Thanks

  • CH

    Colin H.

    20 2 2016 09:42

    2       0

    That was truly excellent.

  • JR

    Jeff R.

    20 2 2016 07:44

    6       0

    My parents never owned stocks throughout their careers--even during the 90s. They did buy 160 acres of land in Idaho though with deer, elk, bear, game birds, an orchard and well.Time to buy farmland?

  • LD

    Leonard D.

    20 2 2016 07:21

    4       1

    The litany of Fed tricks that will be pulled and the fact that the masses truly won't want to believe the facts will extend the timeline beyond what it "should" be.

  • RP

    Raul P.

    20 2 2016 06:52

    0       0

    So Coco bonds are issued by E.U banks, and not Ice T? :) Thanks for an awesome interview. Very insightful and helpful as always. I guess one other thing to do is buy VOL while it's cheap

  • LC

    Liliana C.

    20 2 2016 06:34

    5       0

    How do you protect retirement account and 529 etc? There's penalties and taxes for liquidating. You can "protect" by keeping them in cash and treasuries. If cash is money mkt, it's not insured. Ideas?

  • LC

    Liliana C.

    20 2 2016 06:26

    5       1

    I echo thought that no place is safe. Yes you can stash cash, gold and bitcoin. It can be stolen or banned. Question: Would bail in and taxes apply to "wealthy" only ? What would be threshold?

  • CT

    Chase T.

    20 2 2016 06:12

    2       0

    I write about the war on cash and was very happy to hear your discussion on it. Sure will blindside a lot of people. GREAT discussion, thanks!

  • AD

    Anthony D.

    20 2 2016 04:33

    11       0

    I have been watching this site for more than a year and this discussion still left me speechless. I wonder if this is how it felt in living in Europe in early August 1939. Raoul, Grant, Thank You.

  • rp

    ross p.

    20 2 2016 02:24

    8       0

    This 1 interview worth the entire RV subscription. Laughing at the single hater who gave a thumbs down.

  • cb

    chris b.

    20 2 2016 02:07

    9       1

    Cash starting to be band in Australia as apparently only criminals and tax avoiders use $100 notes. Gold and diamonds (Metal detectors) the future. Bitcoin can be shutdown by governments. Top Job guys

  • BR

    Blake R.

    20 2 2016 01:06

    90       1

    Who gave this the thumbs down? Did Yellen subscribe?

  • NT

    Norman T.

    20 2 2016 00:55

    1       0

    Seems to me that helicopter money is just the next stage of automatic bail in of all of us to pay for past policy mistakes!

  • DL

    Derek L.

    20 2 2016 00:14

    3       0

    Gents,

    Really excellent discussion. Most people, I'm afraid, are oblivious to these developments and the ramifications. Thank you.

  • DF

    Dominic F.

    19 2 2016 23:48

    4       0

    Thankyou!
    Just, thank you both :-)

  • TF

    Tim F.

    19 2 2016 22:59

    5       0

    Great! Schedule this more often.

  • SS

    Sam S.

    19 2 2016 22:08

    0       0

    I want to hangout with you guys---------so many RV talks have come true. Gentleman, place your bets. Cost to get GMI newsletter?

  • MC

    Mike C.

    19 2 2016 21:38

    0       1

    A global revolution of sorts more likely than war....just not the type you're accustom to historically!

  • LP

    Lynn P.

    19 2 2016 20:46

    4       0

    Reading Why Minsky Matters. An interesting perspective on the failures of traditional economics and the policies that follow therefrom.

  • WH

    Wayne H.

    19 2 2016 20:42

    1       0

    Awesome, guys.

  • AG

    Alex G.

    19 2 2016 20:37

    3       0

    And I thank you everyday for setting real vision up. I learn so much more here compared to university.

  • WM

    William M.

    19 2 2016 20:07

    5       0

    There seems to be more & more leaks & official comments about negative rates & banning cash transactions to hinder terrorist & drug money movements. The media just keep regurgitating this bull!

  • WM

    William M.

    19 2 2016 20:02

    5       0

    Superb discussion and EXACTLY why I am with RV. Raul and Grant offer intelligible discussion. I realize they have to be careful with financial advice but telegraphing the messages is so valuable.

  • TH

    Timo H.

    19 2 2016 19:45

    3       0

    THIS should be mainstream financial TV!

  • JG

    John G.

    19 2 2016 19:11

    5       0

    Most investors fail to see the global macro picture because they are caught up in the day to day volatility of the financial markets. Excellent discussion.

  • MS

    Mark S.

    19 2 2016 18:36

    10       0

    Thanks, guys. Probably the best big picture recap I've heard. Please keep your viewers posted as events play out. Things may start moving *very* quickly now.

  • MB

    Mike B.

    19 2 2016 18:08

    8       0

    Another Gem from Raoul. Banning cash is not only to prevent bank runs. It will allow then to tax every transaction undermining the underground economy =contrationary.

  • DM

    Dean M.

    19 2 2016 17:59

    1       0

    Awesome as usual. Thanks guys. Keep them coming. RVTV is superb.

  • CD

    Charles D.

    19 2 2016 17:38

    4       0

    Raoul...did you mean Blackstone rather than Blackrock as the largest holder of illiquid assts? Brilliant discourse.

  • RF

    Raoul F.

    19 2 2016 17:34

    5       4

    Regarding Geo-Risk - Putin's fall will be the biggest destabilizing factor in the coming years. Massive implications of the Russian economic plunge

  • PR

    Peter R.

    19 2 2016 17:08

    7       0

    Lots of takeaways from the last 44minutes. Not many places to hide from the aftershocks when it happens. Who gets to Play Raoul and Grant in "The Big Ugly" the movie?

  • jn

    john n.

    19 2 2016 16:46

    3       0

    If China devalues big, 50%, do they stabilize new value of RMB based on backing by gold?

  • TS

    Thomas S.

    19 2 2016 16:32

    1       0

    Awesome! Just a crazy environment

  • SD

    Salvatore D.

    19 2 2016 16:31

    2       0

    The Dark side of the force is out, where can one hide...

  • BF

    Bruce F.

    19 2 2016 16:10

    1       0

    brilliant. a real eye opener. being forewarned

  • GG

    George G.

    19 2 2016 15:53

    9       0

    great ahead of the curve discussion. Hope you guys do these ''reset'' talks on a regular (quarterly?) basis

  • GJ

    Gareth J.

    19 2 2016 15:53

    3       0

    Raoul / Grant - fantastic piece. There were a few references towards the end to Black Rock. You meant Blackstone, correct?

  • RM

    Robert M.

    19 2 2016 15:46

    1       2

    Why are the derivatives a problem?

  • RM

    Robert M.

    19 2 2016 15:42

    1       8

    For anyone who finds value in this service please also take a look at hedgeye.com.

  • FC

    FRED C.

    19 2 2016 15:36

    5       0

    always a treat and learning from raoul and grant....lets not wait this long for the next update by either of you..great job / insights....tks

  • GM

    Gerald M.

    19 2 2016 15:33

    8       0

    Fantastic stuff as usual. This week on RVTV was really really good. Raoul and Grant deliver the goods. Can't you guys put together a fund? Wow.

  • TM

    The-First-James M.

    19 2 2016 15:16

    2       0

    Thanks so much for yet another incredible interview/discussion.

  • PD

    Paul D.

    19 2 2016 15:02

    7       0

    Excellent interview (again). Could I just ask your thoughts on Platinum - trading a 76% of the price of Gold, isn't it an absolute steal at the moment or am I missing something??

  • PS

    Patrick S.

    19 2 2016 15:01

    3       0

    This enlightening 44 minutes paints paints a possible outcome that seems to increase in its probability by the day.
    "Be aware, very aware" RVTV

  • FS

    Fred S.

    19 2 2016 15:00

    16       0

    Thank you Raoul & Grant.. Without RealVision I'd be getting stupider by the minute. RV gives me a fighting chance to get through the future. Bravo!

  • JD

    Jonathan D.

    19 2 2016 14:51

    6       0

    Teaching us about CoCos has poid for my subs. Thank you.

  • VP

    Vasileios P.

    19 2 2016 14:47

    6       2

    HOLY SHIT!! The most educational 44 minutes of my life!!

  • GB

    Grant B.

    19 2 2016 14:44

    2       0

    A++. Great insights. Muchas gracias.

  • Dd

    Diego d.

    19 2 2016 14:34

    4       0

    Blackstone is the largest owner of real estate :) Good job! Keep pushing me ahead of the others!

  • TS

    Thomas S.

    19 2 2016 13:59

    3       0

    I might buy CoCo bonds... like at 1 cent on the dollar...

  • DS

    Dusty S.

    19 2 2016 13:48

    12       0

    Deutsche CoCo bonds, the medicine that was supposed to save the patient, kills the patient.

  • JM

    Joseph M.

    19 2 2016 13:48

    18       0

    Kyle Bass was looking at european banks back in feb '14...said he was short them all