Julia La Roche and Raoul Pal: Get Ready For 'Macro Summer'

28:44But when you look at them normally, they look like they go up and down a lot. Yes, they do, but within a consistent, secular, powerful trend. Once I saw that, I'm like, if our job is to make money, then this is the trend you need to be on, the secular trend, because it's driven by the central banks. It's driven by technology itself, but then also driven by the central banks debasing. So you get the double whammy from it. It's like, okay, this is perfect. And it also is the answer to the massive macro problem of excess debt and slow GDP and aging populations. So when you've got something that's so against the persistent narrative that everything's screwed and it's all going to go wrong.

29:31And you see it and do a lot of hundreds, hundreds of hours of research on it. And you come up with a completely opposite view. It's like, oh my God. And then I started surfacing that view for Global Macro Investor and then within Real Vision and elsewhere. And it was like a light bulb moment for people. They're like, oh my God, suddenly now understand why things are happening as they are, Why technology stocks keep outperforming? Why crypto keeps going up? You know, why people are angry? Why politics have become so polarised? It all starts to make sense. And if we can make money from it, great.

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31:12you mentioned um you know this being the only way out of the situation and that it's also scary so i imagine there's this optimistic view but there's also a darker view as well can you explore maybe the tension between those two scenarios? The darker view is that the excess manipulation of money blows up the entire system. And that's a lot of people hold that view, that you end up with a hyperinflation or something of that sort, a total economic collapse. But I struggle to get to that answer because in every circumstance, when asset prices collapse or something goes wrong, they just print money.

32:05And when you're the world's reserve currency, it's bloody difficult to hyperinflate it. So what you end up with is this ridiculous rise in asset prices, which then gets rid of this ability to have this massive downside. And I'm going to say, well, I'm going to say, well, I'm going to say, well, I'm going So I think we've taken the big downside away. Well, we've traded it off for something else, which is everybody's incomes basically get poorer in purchasing power over time versus assets. But I don't see... Okay, the other downside people would say, and there's validity to it as well, is that the excess use of monetary policy creates sticky inflation.

32:49and that therefore interest rates need to be higher. But I've lived through whole periods of higher interest rates and asset prices still go up. It's just the rates of change at interest rates that matter. You know, markets don't like rates going from 0 % to 5.5 % in record time. But even if rates stay at 5 % for the next 10 years, it's not going to stop people buying technology stocks. Why? Because their ROI is much higher than 5%, so nobody cares. And most of those technology stocks don't have debt, so they have cash. And their cash on their balance sheet is going up at 5.5 % a year because they're putting it into bonds.

33:31So it's this compounding effect for these companies that is so powerful, it's difficult to change. So this gets so great having you because I'm learning a ton from you and we're taking a lot of notes. So even this notion that we could stay at 5 % for the next 10 years and it's not going to stop tech stocks going up. So I imagine, is it one of the other narratives out there in macro, like this whole higher for longer and folks pointing to, well, it's the longer part that's the concern. Is that one of those false narratives then? Yeah. Yes. I mean, we've had extended periods of time where interest rates have been higher 1006 % and markets have gone up.

34:11It's just this idea on our head. Now, it's difficult to finance the government debt because they have to keep issuing more and more and more debt to pay the interest. But I think that ends up on the balance sheet. So can they do that and still have interest rates at 5 %? Yes, they can. It gets trickier. And I get that. I think that's the point they start using yield curve control. This is what they did in the 1940s and 50s. They said, and Japan has just done. They're like, okay, well, we're just not going to allow interest rates to rise. And we're just going to peg the yield curve, which is another form of monetary debasement and another form of QE.

34:52As opposed to QE, which is by bonds at any price, by X number of bonds at any price, yield curve control is by all bonds at a fixed price. Okay. So that's another form of QE. And would that also push up asset prices then? Yes. And we saw that. We saw over the 50s and 60s, we saw a 9x upside in the S &P. same reason you're kind of printing money and what happened is debt to gvp went down over time because productivity picked up because we had a big technological revolution back in the 50s you know everybody started getting houses cars tvs telephones all of that stuff and that kind of changed um the economic structure okay so let's also step back in this environment and i imagine Okay.

35:48So I imagine you obviously are going to be allocated to cryptocurrencies, tech stocks. Let's talk about maybe, and you have a different risk profile from a lot of folks, but can we talk about portfolio and portfolio construction? What do you want to be in in this environment? What's interesting to you? What do you want to avoid as well? So once I started putting together this kind of super thesis of the everything code and the exponential age, I started to look at all assets versus each other to say, if you're going to take risk, where do you take it? And everything was inferior to crypto. And I'm like, it becomes very difficult.

36:29If you look at it, the best performing asset for three years out of four, every single year since 2009 has been crypto. And then there's one year, which is a bad down year, and then it continues. And the down year is the worst performing asset. But over time, it's compounded higher than any single asset class we've ever seen in history. So if that's the case, every other trade-off is suboptimal. Now, I can take that risk because I have income and I've got assets. So I can take big risks because I think this is the biggest macro setup of all time. So I'll take that risk. But for other people, you can express some of these views without taking as much risk.

37:15If you believe in the debasement of currency, yes, you can use gold, but gold hasn't offset it very well. Yes, you can be cyclical and trade commodities. As soon as we start going to macro summer, commodity prices will rise. You can make money from that. You can make money from buying banks at the bottom of the cycle. You can make money lots of ways. It depends what your objective is. And how it came to me is it just became the big macro view and therefore the big macro bet. And a lot of people you and I know all came to the same conclusion. We've seen it. Dan Tapiero, Dan Moorhead, Mark Yusko, all of these people, one after the other.

38:00A lot of them all were GMI people. We all found about it. We all went through this journey together back in 2012. People have just realized it is the mega trend. Now, again, it's not for everybody. You have to deal with some huge ups and downs.

38:18But there are ways of playing in the equity market, stuff like Coinbase, stuff like that. or otherwise I just think you're going to be underperforming the debasement of currency. So the standard I'm going to stick my money in the S &P 500 ETF, you're just not going to get anywhere. That house price is still going to go up and you're just not going to make any excess returns. And it's a really serious situation. People don't want to understand it. They don't like this narrative. They don't like to be told that most assets aren't worth investing anymore, but it's true. And just look at the price action.

39:00And even if you take crypto out, because you're not a crypto person, justified any asset by the NASDAQ. Just crush them all. And then people say, well, it's going to mean revert. I'm like, what is going to stop this technological revolution accelerating? If you can find me a reason that this stops as opposed to the business cycle, you know, rates go up, blah, blah, blah. It comes down. I can't find reasons. Just when you throw AI, robotics, gene editing, space, EV, I mean, it's like a massive structural change. So I don't see many examples. I mean, if you listen to Stan Druckenmiller, you know, he's long in video, you know, he gets it.

39:46It's like, what's going to stop this? What's going to stop Google going up? Even if they destroy their business model of advertising, they still have a lot of the technology bets. People thought Meta were dead because they had a big sell-off in the bear market last year. I mean, I don't know, it's 300 % this year. It's very hard to keep down technological advance, particularly when it's in monopolistic powers like these large tech firms. because all they do is they buy anybody who threatens them. Yeah, the AI side of things is really fascinating too. And I mean, you could see it even individually using it, the productivity gains as an individual, but also this notion of like robotics.

40:29And I actually know people who are working on this in the robotics space. I know a friend who's a founder working in this space. And I want to explore that a little bit with you, the AI side of things, the robotics, really exciting near term, but how about like a bit longer term? Because, you know, what happens when people can't get jobs and the robot is doing a better job? They're not complaining. They show up on time and do everything. How do you think about balancing that risk? The basic answer has been, you'll need to tax the robots and increase universal basic income, but that doesn't help because humans like to do things and they're social creatures.

41:14We've now changed how the structure of societies work. They used to be, you're in North Carolina, it revolves around the people around you, your town, your local locations, stuff like that. It's the village with a church in the middle and a bar in the middle. That's how societies used to be. That's changed. We still have some of that, but we now have these massive online societies that we all live in based around your interest groups. And my view of all of this is that is where human purpose will reside within these digital network states, these big communities of people where we work for the community.

41:59Whether that's the community around Taylor Swift or whether it's around a cryptocurrency or it's around whatever interest that you've got, sports teams, whatever. And that's one of the big unlocks of Web3 is it allows people to participate in these communities in an economic sense. And we will see much more of this coming. And it's something that Yatsui from Animoca Brands called universal basic equity. If you think of Facebook and their WhatsApp and Instagram and all of those things. We got to use those products, but the shareholders got rich. The Web3 changes that equation, is the users can get rich too.

42:48And that becomes really interesting because you can own a part of the network. So I think there's something around this that is where the world will go, because humans do want to socialize. They do want to help each other. They do want to have competitive spirits. They don't want to sit at home and get paid universal basic income. They want a purpose. And if your purpose can be promoting Taylor Swift, great. And if you can make money from that, great. That may be even more fulfilling than going to a bloody factory and pressing buttons all day or greasing a machine. But it's just a structural change to humanity.

43:32Much like we could have gone back and said farm workers ended up becoming factory workers. You know, societies do change and then factory workers ended up becoming people working in restaurants and service industries. So there's no difference. It's going to happen faster. Yeah. And speaking of the timeline, I think when I was listening to you earlier, just going back to AI, saying by 2030, I think, and I don't want to misquote you, that we'll really start to see this massive difference or take hold. I guess I want to hear more on the timeline side of things. And I also want to throw in crypto in there because you've been in crypto since, what, 2012 when you first started exploring the space.

44:14I just want to hear your thoughts on the pace there. Has it been faster or a little bit slower or right on par with your expectations on the crypto side of things, maybe the broader adoption? Even we can throw in the institutional adoption. Yep. So crypto side has been outside of AI, the fastest adoption of any technology in all of humanity. It has been following a perfect log trend. And what was staggering is last year, the number of active wallets in crypto grew 42 % in a year when the market went down 80%. That's like, oh my God. We're now at 516 million users. by the end of 2030 will be well over a billion users, maybe two billion users.

45:11So it is a very prevalent technology. And it's happening this cycle everywhere, kind of everything everywhere all at once. The banks are using it. They're already trying to settle securities on it. They're using it for payment systems. We're seeing Visa using it for payment systems. We're seeing mega brands like Mercedes-Benz or Starbucks using Web3 NFTs. We're seeing Hermes, LVMH as a broader company adopting this. We are seeing the ongoing adoption globally of cryptocurrency as an investment vehicle. We're seeing the institutions investing in it. I've had on my show, Texas Teachers, they were pioneers in the space.

46:04We've had Franklin Templeton, Fidelity. I mean, these are big companies. Now we've got BlackRock. So what is going on here? Here's a nice way of framing all of this. And it makes it easier for people who are kind of crypto cynical or don't really understand it. We have two worlds. We talked about this before. We have the physical world that we live in, your world of North Carolina or my world of the Cayman Islands. And then we've got the digital communities that we live in. The crypto land and fiat world are these two worlds. Now, we talked about GDP is slow in fiat world because of aging populations, debt, and lack of productivity.

46:48But over in crypto land, the population is growing up 42 % a year in a year when the economy went down 80%. You've got productivity improvements as new uses of blockchain technology get introduced every day. And you've just wiped out the debt from the previous cycle. So you have an extremely fast-growing emerging market. And what happens is you're now seeing Fiat World participants set up offices in crypto land. Franklin Templeton, Fiat, Franklin Templeton, Fidelity, TRS. They're setting up offices there. So we love this place. We think it's a dynamic economy. We want to build stuff here. Then the ETF comes along.

47:37The ETF, people need to think of as a trade deal between Fiat World and Cryptoland. So it's a trade deal to allow capital to flow into this other economy. And as that economy, crypto land grows fast, a lot of money is going to go down through this pipe of the trade deal, which is the ETFs, and then will flourish within that economy. So we're seeing this giant sucking sound of people seeing this economy. It's much like when China came onto the world stage. Is everybody flooded there? Everyone put their capsule there. Everyone built offices there because they could see the big opportunity. Well, this is the fastest growing economy we've ever witnessed.

48:18It just happens to be a digital one. It has its own system of currency, its own interest rates in central bank policy. It has a financial system, which is DeFi. It has states like Bitcoin, Ethereum, Solana, whatever it may be. These are states within crypto land. And those have different policies. We have taxation systems within crypto land. We have assets, NFTs, within Cryptoland. And it's just because they've all been more attractive over time, it's sucking in more and more of Fiat World into it. And eventually, I think it basically subsumes Fiat World. That's a fascinating way to think about it.

49:06Just one quick question. You pointed out the number of wallets growing, I think you said 42 % when the market was down 80. And it just makes me bring up this as more of a curiosity, especially as someone who's been investing for decades. How do you manage the psychology when you go through these periods? I know you've been in Bitcoin for... Okay. I'll give you my story because I've learned. So I first saw Bitcoin 2012 and I wrote that macroeconomic strategy paper on it. It was the first one ever written about Bitcoin, how to value it. And I said, listen, I think this thing could be worth it. If you value it in the same way you value gold, this thing's worth a million dollars.

49:48That's right. And let's assume I'm an idiot, discount myself by 90%. It's worth a hundred grand and it was trading at$200. I'm like, this is the best macro risk reward I've ever seen in my entire career. And so I bought it then, as did many of my kind of global macro investor people at the time. I wrote it up and it went up 5x very shortly afterwards.

50:14And then collapsed 87%. My time horizon, however, was long. I'm like, this is an option. It could go to zero because it was still very early days. But I think it could be worth 100 grand. And this should be a 10-year bet. So that was the idea. So like goes down 87%. I didn't have a massive amount, a few percent of my portfolio in it. It's like, fine, okay. We'll see. By May of 2017, I was up 10x from my original entry. Having seen it go down 87%, I was now 10x from my entry. I'm like, okay. And then there was a lot of confusion in the space about forking wars and stuff I didn't understand. And I could see it was ramping up.

50:59I'm like, I'm just going to take profits. Great. Great trade. I thought, I'm a god. I'm like George Soros here. I've just nailed it. It then goes up another 10x into this frenzy into the end of the year, that spectacular bubble of 2017. And I was fine with that. I'm like, I'll make 10x. I'll leave it to the next person. Novo became the billionaire out of that trade. I didn't. And then the market fell and it did its usual 85 % round trip. And we continue to educate people via Real Vision about it, I still thought it was a... I hadn't lost my faith in the idea. What I'd done is screwed up my time horizon.

51:39I didn't think that I should have kept it for the 10 years, but I didn't. So then, all well and good, I see the pandemic, crypto collapses, I buy back in at 6 ,500 and still hold it to this day. It went up 10x, come down, going back up. Great. Made a lot of money from it. And then about a year ago, I went back and said, what happens if I just kept my original bet, which was much smaller? I'd have made five times as much money. And I traded it well. I bought it low, sold it high, bought it into a dip. I would have made five times as much money. And then I thought, I always show the log chart, these business cycles in the log chart.

52:28I'm like, what happens if I just added my original investment every time it got to one of these business cycle loads? I would have made 25 times as much. I'm like, I completely screwed it up, even though I did well from it. So this time around, I knew we were going to get a down cycle. I didn't get the top. I thought it was going to go higher, whatever, it's irrelevant because it's the down cycle where you add that makes you all the money. So I spent all of last year buying Solana, Ethereum into the massive sell-offs because then you compound much faster. So you should be embracing the volatility if you've got a long-term view.

53:15If your view is one year, three years, three months, it's much harder to to deal with is so volatile. But when you just zoom out, use the logarithmic trend and don't freak yourself out, which is why I've tried to be the voice of reason on Twitter when everyone's freaking out. It's like, we've all seen, FTX goes bust, yeah, Mt. Gox went bust. We've seen this, we've seen that. It's just noise. Has the adoption of this technology changed or not? No, keep going. And that was it. So it's just a psychology change of understanding long time horizons. And I found that long time horizons are a superpower.

53:53Yeah. Because most people can't do it. Yeah. Wait, did you ever actually look at what the actual number figure would have been? I did. And it's not good. You don't have to share. I probably have time for one more question. And maybe I'm looking at our notes. And again, so great to have you all. I'm going to ask you a question about AI, because you asked me that question, the acceleration of AI before this one. This is even faster than crypto's adoption. because it's built on top of the internet rails that already exist, and there's zero barrier to entry apart from just paying open AI. And then Microsoft are going to put into every single one of their products.

54:30It's going to get to a billion people by mid next year. So the acceleration of this technology plus the improvements of the technology itself are exponential squared. It's like we've never seen anything like this. No technology has ever improved at this rate, so it becomes very difficult to forecast yeah because we just don't know now we just don't know it's fascinating it's so fascinating um it does make me want to ask like maybe one final question um and i've heard you in the past talk about uh the fourth turning actually i had neil how on the show just a couple months ago and i i just want to bring it up because i want to hear Or how does all this kind of fit into that?

55:18Do you still buy into that framework? And is this maybe the way out of the crisis period, out of the fourth turning? This is the fourth turning. We're building an entirely new system. We're building an entirely new structure of the economy. And the fourth turning was never going to be what people wanted. It's what happened. A lot of people think of the fourth turning and they want to go back to the 1950s. and other people want some other variation of it. But what's happening is in front of our eyes. We're building an entire parallel financial system at record speed in front of us, built on top of the internet.

55:53And then we've just built this knowledge monster on top, this new kind of God. So within this is a new system. How that works? I have no idea yet. I can see the crypto side, that's pretty straightforward. how the rest of it works. This is the fourth turning and this is the answer for the other side of it. And like all fourth turnings, it's going to create enormous amount of friction, fear, misunderstanding, but eventually optimism. Well, Rao Pal, it has been an absolute pleasure. I want to give you a few moments to talk about Real Vision. I'm a proud paid subscriber to Real Vision. Can you let folks know more about the offering?

56:37Also, anything else that you want to bring up in this conversation that we didn't, where folks can find you. I know on X, formerly Twitter, you just crossed a million followers. Congratulations. So just take the next few moments to do so. Thank you. Look, Real Vision, most people know the story of Real Vision. We built it to democratize the very best financial knowledge. But nowadays, we think the world has changed and people need not only just the knowledge, but they either need to learn how to learn, so we built education we have the incredible content on real vision with the world's most famous investors analysts strategists all of that all of my kind of theories it's all there but then we realized we needed to build a lot more because we built a community we built the best community in finance and they're in 120 countries there's tens of thousands of them paid members and then about a million and a half others so we're like okay let's create one place for everybody to live their financial lives, where macro can meet crypto, can meet technology on a kind of open discussion forum where people can really dig in and learn.

57:53So we built this new Real Vision platform, which is groundbreaking. We've got AI embedded, so it can summarize videos for you, explain stuff. You just go through the transcript. The transcripts are in real time. As you go, you just highlight something like, what does reverse repo I mean, and the AI translates it for you. Or if you say, hey, listen, I haven't got time to watch this hour-long video. Explain it to me like I'm five in 10 bullet points. We then have a notes section where you could just clip that and it saves it to your notes. And then you can keep all of your research together in one place.

58:25So now you've got this superpower of knowledge and tools. So with tools, we've got AI, obviously, but we've also got pricing, charting, analytics, and your abilities to put portfolios in. And then we've got this network. The network's the multiplier effect because we've got this gorgeous 3D map of the world where I can go to any city and see who the Real Vision members are. I can talk to them. I can connect with them. It's like people in finance used to have Bloomberg to do this, but this is a whole new way of doing it. So we've created this amazing new platform and it's free to use. So there are various different tiers, but just go to realvision.com.

59:04and just see we've reinvented how people can live their financial lives. So we've gone from being, we were the people who invented long-form media in finance. Then we had the written research side and now we've changed the game all over again. I love it. And it's been incredible to watch the journey of you and Real Vision and just the impact you're having on folks and teaching us and helping all of us get better. So Raoul Pal, founder and CEO of Real Vision, author of Global Macro Investor and CEO of Exponential Age Asset Management. It's been an absolute pleasure having you on and Raoul, great to see you again.

59:44Thank you so much. Thank you, Julia. As ever, total pleasure.