Raoul Pal & Julian Bittel: Making Sense of Everything (Masterclass)

30:01The exact same mechanism is what drives valuation of equities. Earnings are variable. They're more in line with GDP growth. The price of equities is driven by debasement. So over time, what we see is equities look optically more expensive using this old measure. This measure was fine when we weren't debasing the currency. It is next to useless now when we look at a world of currency debasement since 2008. Crypto is the other one that's driven by this liquidity cycle. In fact, everything is. But again, I'm focusing on two assets and you'll get to understand why later. So here's Bitcoin because it's got the longest price history of all crypto.

30:43Here you've got about an 85 % correlation with liquidity. Why is it not hard? People think, well, this is all just a liquidity thing. No, no, it's liquidity plus technological adoption. And that technological adoption is what drives the outperformance, which lowers the correlation. But it's, again, staggeringly high correlation. Liquidity is everything. It's something I've tried to get across. The everything code is the understanding that liquidity is everything. It's there for a reason. All the governments and central banks understand that reason, which is we can't have a debt crisis. If you debase currency, you can't also have a stock market crash where the main market is down 50, 60%, because all you need to do is debase the currency.

31:31And by magic, the market goes up. You guys can all remember what happened in 2020. That was debasement of currency that stopped the asset side collapsing, which would have brought down the house of cards because assets are collateral for all of the debt. So you can't have, we've taken out that left-hand skew of the markets, which is the ability to crash because all they need to do is turn on the magic money printer and it all goes away, even though it hasn't really gone away, as we know. You're all paying for it by this tax, which is a debasement tax of 8 % a year plus the inflation. Again, money printing doesn't create inflation.

32:11Inflation is based on inflation as in CPI is a variable asset thing, which is goods and services that are supply and demand. That's not driven by this. This drives assets and scarce assets only. It does not drive wages. It does not drive earnings. It does not drive commodity prices. It does not come by all of these things where people's narrative is confused. They're looking at the wrong thing. They're confusing debasement with inflation. Okay. So now we understand liquidity, how it fits in, what its job is, why the central banks and governments are using it to pay the debt, which is unserviceable.

32:51What I discovered was something was so profound that's created the next leg of the everything code for me and the thing that really unlocked it. I started realizing it was in fact a ping Julian in fact Julian you tell the story about this for a sec yeah um that's funny because so the chart that Raul has up on screen now um I received at like five in the morning as as one does when you work with Raul Powell and there was just no other comment other than holy fuck. And so I woke up to that. And because of the time delay, I'm in Europe, he's in Cayman. I had to sort of wait, whatever it is for him to wake up, to explain it to me.

33:41But essentially it was that. So it was really funny. But yeah. The idea is what I'd discovered is just messing around with my Bloomberg screen. I had realized that the ISM had gone from being this thing that I used to spend my life predicting. When would it peak? When would it bottom? All of these things. I spent my whole life doing that because the ISM drives assets, which Julian will show you later, to, oh, fuck, it's perfectly cyclical. I don't need to do any of that work, really. That's just backup work. If it's perfectly cyclical, I need to understand why. And if it's perfectly cyclical, then there's a probability i can forecast it okay now we're talking a code a hack that's really important so i started looking at is the ism from the past cycle predictive of the future cycle and hey presto it is so now we can understand the business cycle going out into the future and here it says and again julian and we'll talk about this stuff later, here it says that the ISM will probably peak sometime in June 2025.

34:55It won't be an exact fit. And we know where it's going. And if we know that, and we'll come onto the liquidity and how that fits together, you can see how we can kind of predict asset prices, which sounds hubristic and maybe stupid, but I don't think it is. And you'll see in a minute. So what the hell is driving this thing? Why have we got this perfect cyclicality? It's because we are in a debt refi cycle. Back in 2008, we had this debt jubilee. As opposed to writing off all the debts, all of the major central banks around the world and government said, holy shit, we've got a big debt problem.

35:37We went too far. The private sector has got too much. We need to figure it out. We need to stick it on the government balance sheet. We need to clean this mess up. because if not, we're going to be in the 1930s all over again. So what they did was a magic trick, which was make all interest rates zero. So hey, presto, nobody needs to pay their interest. Imagine what it would be like for everybody here if all of your interest payments suddenly went to zero and stayed there for a decade. Well, that's what happened. And so the government then thought, okay, right, we need to clean up our balance sheet, sort this out, make sure that we can finance all of these debts.

36:13so they restructured all of their debts into the one-year to five-year sector so you can see that from the chart here is it's all clustered and what it did was create a four-year cycle and that four-year cycle is perfect this is not the first time it's happened either julian and i did some work on the 1950s after a similar situation of all the debt after world war too. And they did the same thing. Financial repression, that time was yield curve control, reset the debts, and the economy was massively cyclical until productivity eventually grew, and they got their way out of it. So this has been done before.

36:53It's the 1950s playbook. And here it is again. Debase the currency and then service the short-term debts. And it's creating this perfect cycle. But even within this cycle, it breaks down to shorter cycles. And this is where it gets bananas, which is a word you'll hear us use a few times. It's so arrogant and stupid to think that you can just simply break it down. Here's a four-year cycle, and it breaks down to simple four years. But it does. and it has done since 2008. And what you've got here in this kind of overly colorful thing is you've heard me talk about this macro spring in green. That's when the economy starts thawing because liquidity is starting to rise.

37:47Then summer comes and liquidity starts really moving. And then fall is when you really often get a large injection of liquidity before eventually we go into winter, which is the blue, and liquidity shrinks as the central banks pull liquidity out of the market to try and cool inflation and the economy overall. And they've been doing it perfectly. These debt cycles also happen to be the US presidential election cycle, because it so happened that 2008 was the presidential election cycle year. It's also the same as the Bitcoin halving cycle, because Bitcoin was 2008. So we've got one mega cycle that rules it all.

38:27It's the most powerful cycle we've ever had. And most people can't see it or don't yet understand it. And it makes them be wrong in their understanding of how everything works. And you can see people trying to explain things on Twitter without understanding what really moves things. But when you understand that same grid of colors, the same seasonality, understanding that each of these was an increase or decrease in liquidity, well, when you look at the NASDAQ and we've proven how NASDAQ is correlated, NASDAQ breaks down exactly by the seasons too. NASDAQ does well in summer, which is where in now, we're just transitioning into, but it does really well at the end of the cycle in fall.

39:12It tends to have a momentum. It's kind of a reflexive process, which really builds on itself because in fall, earnings are at peak. So equities are driven by earnings, earnings plus the investment cycle, people have got more money to invest. So falls, that would equate to 2025, should be really strong for tech and strong for this year too, which is summer, coming off green, which tends to be very good the spring too. So this is this exponential age tech trend that I talk about. But crypto, same cycle. This is the crypto cycle. We can call it crypto spring, crypto summer, crypto fall, crypto winter.

39:52It's the same as the election cycle. It's the same as all the things. Yeah, the presidential cycle, they're all the same. So crypto tends to do decently well in spring. The anomaly was 2020 because of the pandemic. It did very well in spring, less well in fall. Generally speaking, like the NASDAQ, fall is when the real price action starts. My guess is we'll probably be more similar to 2017, 2013. This cycle, because we're not jamming excess liquidity in early, it'll accumulate over time. But anyway, now you understand the cyclicality, why it happens based on liquidity. You understand liquidity itself and why liquidity is there.

40:40What its job is to do is to base the currency, to pay for the debt. That's making the rich get poorer, the poor get poorer. It means your wages don't go up as much as the cost of housing. It's all described within the everything code. But the everything code goes one stage further. because it's so cyclical we can forecast further out as well so we showed you the ism cycle and how it's forecastable but we can forecast liquidity too and if liquidity is the driver of assets guess what we can forecast assets that was the point when julian and i kind of looked at each other went this is really truly crazy and it's been working and i'll come on to some of the caveats on that in a bit.

41:23But let's forecast the liquidity cycle now. Let's go back to the chart we looked at before. Well, we can forecast the business cycle. The business cycle, the Institute of Supply Managers survey is the best general business cycle indicator. And we can now put one cycle, the previous cycle onto the new cycle and invert it. And you get this, you get the repeating cycle. So that tells us forward looking, the business cycle should be going up now. There's a lot of information in that. And Julian will explain what that means. But basically, if you know the business cycle is going up until June, cyclical stocks will do well, commodities will do well, all of the things driven by the business cycle and earnings will do really well.

42:07Technology and crypto driven more by liquidity as well. And we'll come onto that in one second. Okay, so let's forward look liquidity. Don't expect this to be perfect. This is the first time we've used this kind of thing. But here is using the ISM cycle, we can forecast the global liquidity cycle. And it suggests that global liquidity peaks in September 2024. And it doesn't go negative until December 2025. Our work tends to suggest that the assets peak when the liquidity cycle goes negative or just around beforehand. But it could peak not with the peak liquidity, but somewhat on its way. But generally speaking, it tells us we've got most of 2025 to be positive and then things go negative again.

43:03Now, you might see the underperformance now and say, well, why is it not working, Raoul? Look at liquidity. It's not following. This is early days yet. We've got plenty of liquidity to come, whether it's helping China by injecting dollars into the global system for the Chinese currency or for the Japanese or bailing out the commercial real estate or giving out stimulus for the election or whether it's running down the Treasury General account or whether it's the Chinese printing money or the Europeans cutting rates or whatever it is, there's lots of liquidity that lies ahead. They've just been a bit slow with the massive injections of liquidity because they needed inflation to get down.

43:45Now, we think inflation is dead, at least for the rest of this cycle. So therefore, they should have a green light to really start jamming liquidity. So it's been delayed, let's say, because inflation is not below 3 % yet. That's all to come. Okay. By using that, we can forecast how liquidity goes. And guess what? It fits within that lovely log trend, which is perfect. It kind of suggests that this would be right. So global liquidity peaks around then. That's what it's going to look like. And eventually, as liquidity itself starts falling, we will end up... So that's June 2025 now. And as liquidity starts falling by December, then assets should cool off significantly.

44:31And we go through the winter cycle. Now, please take these. I know people are just going to take them and say, Ralph, how predicts this? Do not fucking do that, please. It irritates the shit out of me. This is the everything code. I've not shown this to everybody before. Here's the everything code against the NASDAQ. Because if we can forecast liquidity, we can get somewhere close to forecasting uh prices so it's suggesting by june 2025 we get to somewhere like 27 000 in the nasdaq does it peak then does it peak somewhere between then and december but we're looking for that kind of directionality it also maps with those log trends we get to about 30 000 in nasdaq that's kind of what the target in my head will it be less than that will it be more than that don't know don't care directionally right before you start having a larger correction.

45:25And for those of you playing along at home in crypto, here is the same. The cycle gives you a peak of 400 ,000 in Bitcoin. Again, I have no idea. It could be 50 % wrong. I don't really care. The point being is the structural rise in prices lies ahead and it's going to be reasonably big. Now, again, what are the dates between 2025, June and December? Does crypto peak early? I don't know. I actually don't think so. Because we're going to more closely follow the 2013-2017 cycle. But it's not clear. So I keep an open mind. It's not about nailing the top. It's not about getting the price right. It's about directionally getting this whole trend right.

46:08So now I've laid out the everything code. and how, by putting all this together, we can actually forecast assets, which is pretty fucking bizarre. We'll see, it's still a hypothesis. It's been working perfectly since we discovered this. Let's see how it plays out over the cycle. But directionally, it's the most important thing you can use, understanding this stuff. Now, I know you can't build GMI total liquidity yourself. Sure, you can sign up for the macro investing tool and get it from there or ProMacro or GMI, whatever. That's the way of doing it. You can find your own proxy like GlobalM2. It's nowhere near as good, but it gives you a rough idea or FedNet liquidity.

46:53It gives you a rough idea. But obviously, if you want this work, you have to get it from the various sources like the Macro Investing Tool or Real Vision ProMacro, where you'll get the commentary of understanding of why it matters and what it's going to do for you and forward-looking. So now we understand that. I also want to bring it from, so this is very top down I've gone and Julian is going to bring it bottoms up. This used to be a top down framework, the business cycle for us, but it's actually now become our bottoms up work, which is how macro we think the world has become and how massive this everything code picture is.

47:29So Julian's now going to run through, I'll stop sharing my screen. Julian's going to run through the business cycle and its importance because you guys really need to understand this. part of this work was also in the Real Vision Academy and our work on the business cycle, but it's never been put together all in one framework before. So hopefully this is gonna help bring up your understanding. And again, hope you're taking notes at home. One thing to know is this entire deck of 125 pages will be available to everybody on the Real Vision platform for free. All of you guys watching this on YouTube, just go to realvision.com sign up it's free just your email address and you can have this entire presentation it is the most important presentation we've ever done i think it's probably the biggest presentation that's ever been done on macro uh certainly made public so it is important you can go there also on realvision.com um i will put this into our um ai bot on real vision and create a summarize notes of it as well.

48:35So you can digest it. So it'll give you a note that you can find on the notes section of the platform. It will give you the whole document and you should have a much better understanding. You can take your own notes on the platform too, because you're going to need to do this. Because I understand I'm dumping too much information on your one go, but it's too important not to share. Right, Julian, over to you. Yeah. So thanks, Raul. So as Raul said, I'm going to talk through the business cycle. What Raoul really just addressed is our major secular thinking around macro, liquidity, how it all fits together.

49:14But Raoul also referenced on a number of occasions was the business cycle and the ISM. And we believe that the business cycle is the most important driver of all asset prices over the medium term. So when we talk about taking asset allocation decisions, when we talk about risk management decisions. So we talked about just quick to interrupt there, because I've already said liquidity is, but just to clarify, liquidity is a function of the business cycle. So the business cycle is the framework to understand all of that. That's why it's so important. Yeah. And I'm going to come on to that as well later when we talk about the macro seasons, right?

49:52Because we're looking at a regression on interest rates and growth. And why not liquidity? Because growth and liquidity are correlated and liquidity is a function of growth. Right. So yes, that's right. Right. Now, overall, the business cycle, once you see it, once you see the way it works with all asset prices, you just can't unsee it. It becomes embedded in your investment DNA. So let me show you that. And where I'm going to start is really basic. Okay. So I'm going to start from the understanding where I'm going to try to that you don't know what the ISM is, and then we'll build it out talking about some more complex topics as we work through the presentation.

50:33So when Raul talks about, or I talk about the business cycle, we're really, the ISM and the business cycle tend to be synonymous, right? Because we use them interchangeably. And what the ISM stands for is the Institute for Supply Management. And it's a monthly survey, which is handed out to the world's largest supply chain executives, asking them about their business. So, you know, what do new orders look like? What do your inventories look like? What's your employment situation look like? Do you expect growth to pick up or slow over the next, let's say, six months? There's a lot of subcomponents within these surveys.

51:12But essentially, what they're trying to do is get a gauge as to what's going on in the economy. And ISM is also known as a PMI, so a Purchasing Manager's Index. And we have these. This is the US version. We have them for Europe. We have them for Japan. We have them for China. We have them for Brazil. You know, you get the point. And the way to think about these is very simply, below 50 means the economy is slowing. And above 50 means that the economy is expanding. Okay. So currently, the ISM is slightly below 50. So what it's telling you is that the economy is still slowing, but it's slowing at a slower pace than it was back in June of last year because the ISM was lower.

51:56Now, what is a sort of a typical business cycle? What's actually going on here? Well, if we just hypothetically say the ISM is still at the lows, and we're looking for signs for recovery, one thing you would do there and then where you might see some signs of a recovery is look into some of the subcomponents of these PMI indicators. So you can look at things like the outlook for new orders, right? Or the outlook or so CapEx intention. So the outlook for capital investment six months down the line. And generally, these things turn higher than the headline, turn higher before the headline ISM number and gives you some idea as to where this thing is heading.

52:41So let's just say, for example. And I think, Julian, people can actually play along at home with those because you can do on TradingView and stuff like that. You can put the ISM or ISM new orders on the same charts and have a look at it. It'll give you a good idea of what we mean by that. And again, this is exactly the stuff that gets covered in the macro investing tool, where we make it kind of idiot proof that you don't even need to make your own charts. You don't need to do anything. And you don't even need to make your own charts and you don't even really need to think about it. But the point is, is I'm just trying to illustrate here and now what a business cycle is.

53:13And so if we just take an ISM at the lows, and let's just say, for example, the outlook for new orders has started to improve. If that's the case, that means that there's discussions being had between supply chain managers that the outlook, so that orders are going to come in stronger six months down the line. If that's happening, that means that confidence is starting to improve. If confidence is starting to improve, that means consumer confidence is starting to improve. That means CEO confidence is starting to improve. If those things are improving, it's very likely that bank lending is starting to improve.

53:45So banks are, banks' willingness to make, let's say, commercial and industrial loans or household loans is improving. So that's an injection of liquidity. That means more consumption. That means more investment, right, which leads to more earnings and more GDP. At a later stage in the business cycle, let's say the ISM is now approaching 60. That means that inflation is probably coming from some mix of demand pull or cost push inflation. Demand pull is consumption. Cost pushes supply-driven. And that leads to central banks becoming more hawkish. They then hike rates, right? Higher interest rates increases the borrowing costs.

54:24At the same time as this is going on, wages are generally rising. This means that you have margins being compressed. Margins being compressed means eventually you probably have layoffs. You have layoffs. What does that lead to? Less consumption, less investment, less earnings, less GDP. So that's actually what's going on here. And I just picked a random number of things to say there. I mean, you could have picked anything, but that's really what's going on within a business cycle over time. And really what you'll find out as I go through this presentation is the business cycle is the earning cycle.

54:56And that's why it maps very well to basically all asset classes. So now if we look at the ISM versus equities, so here we're looking at the ISM versus the S &P 500 in year-on-year terms since around 1950, you can see that they're extremely correlated. And they've been extremely correlated over this entire period. And if I zoom in, now it becomes even more clear. So the business cycle is the key driver of asset class performance across the board. And it's not just the S &P 500, it's the NASDAQ. And I'm going to talk a little bit later about why some assets have priced in more of an economic recovery than others.

55:45It goes down to the four seasons of asset allocation, liquidity. But again, I'm going to talk about this. But essentially, the NASDAQ has front run the ISM. And this actually makes sense. This comes into play when we talk about the GMI business cycle dominoes, understanding that risk assets tend to be a pretty good leading indicator of the economy, bar anything systemic or exogenous or endogenous shocks where it's very difficult to have visibility on things. Like for example, COVID, it's very difficult to price something in like that in advance because we don't know it's coming. But bar that, equities do a pretty good job.

56:23And what happened in Q4 of 2022 is the NASDAQ fell to pricing in an ISM of 37.7, which was deep recession territory. And at the time, our lead indicators, which I'll come on to in a second as well, had turned higher. And we just said, this is too much of a recession in the price. That's exactly when we turned bullish. But I'll build that scenario out for you in a little bit. But essentially, it's the NASDAQ. It's also cyclicals versus defensives. And actually, this is probably the key chart for your understanding. So cyclicals are energies, materials, industrials, consumer discretionary. Defensive equities tend to be like consumer staples, utilities, or healthcare, for example.

57:03And this makes sense because as the business cycle is improving, so the ISM is rising, cyclicals outperform defensives. So this is things like, let's say, if the business cycle is turning higher, confidence is improving. As I say, spending is improving. You're much more likely to buy a new car or go shopping or eat out when the business cycle is improving. Things like stocks like LVMH and BMW will outperform as a result of that. But when the business cycle is slowing and your top line is slowing, plus wages are rising, which is typical late cycle ISM slowing, you get margin compression. And as a result of that, the stocks with less cyclical cash flows, be it Walmart, Coca-Cola, tend to outperform.

57:46And what I'm going to show you later in the MIT tool is that much like you have cyclical versus defensive equity plays, You have exactly the same thing across commodities. You have defensive commodities and cyclical commodities. We know them. It's copper, it's lumber, it's things like that. But defensive commodities are things like grains or livestock. I mean, if you lose your job, and I gave this example, and Raoul actually talked about the original video that we did at the Academy talking about this framework originally. I break out the seasons a little bit in more detail there. So if you haven't seen that, I would encourage you to go see that.

58:27But just because you lose your job doesn't mean that you're going to stop eating cornflakes if that's what you eat in the morning. It also means you're not going to, if you're a meat eater, you're not going to all of a sudden stop buying steak. I mean, you might stop buying steak, but you're not going to go vegan. You might buy hot dogs instead, whatever it is. So it's the same thing. Cyclicals versus defensives applies across the entire ecosystem. That's what you see at play here. It's the same thing with small cap equities. So here we're talking about the Russell 2000 emerging market equities.

58:57I'm going to speed up a little bit now because we've got quite a bit to get through. It's not just equities either. Here it is versus crude oil prices. And it makes sense as the economy is improving, oil prices go higher. Demand is improving. It's the same thing with aluminum prices, copper prices, the copper gold ratio. Now, just remember this chart because I'm going to talk about this a little bit later. And what this basically just tells you is, and it makes sense, as the business cycle slows, people increase their allocations to gold. as the business cycle recovers, people increase their allocations to a more cyclical commodity that's more dependent on the business cycle, which is copper.

59:38So keep this in mind because I'm going to come back to it. Same thing with carbon, just a function of the business cycle. Credit spreads. I mean, well, actually this is not credit spreads. This is HYG. So it's high yield corporate bonds. And it's the same thing if you look at investment grade bonds And then Bitcoin. And I'm going to talk about it being elevated in a second just to clarify everything. But Bitcoin does not operate in line with the business cycle. It operates in line with the liquidity cycle and the easing of financial conditions. That's why you've seen Bitcoin start to price in an economic recovery in advance.

1:00:17That makes sense. And that really is going to come into play when we talk about the dominoes. But the point here is just that everything is cichlid coal. So now you're going to say, OK, again, we just cover pretty much the entire capital structure by, I mean, a huge series of assets, including crypto. And the point that I made before, if this is the case, then there's no diversification. Everything is driven by the same macro factor with some things leading it, some things lagging it. But generally, it's all one fucking trend, which is the economy, stupid. Yeah, exactly right. And this chart was pretty profound when we first found it, just because Because for so long, we've heard people say, well, Bitcoin bears no resemblance to the real economy, and therefore it's not governed by the same economic fundamentals as a credit spread or an equity risk premium.

1:01:11Actually, it is. It's all the same thing. As Raoul just said, it's the economy, stupid. And it is the economy, stupid. And we were the first people in the world to prove the macro cycle on crypto. Without question, and you'll come into this later, without question, we've done more macro work on crypto than any other people in the world. And we were the first to show this. As you said, people said it's uncorrelated. It's nothing to do with macro. It's like it's everything to do with macro. Yeah. And this is another reason that this is profound is, and I had to make sense of this chart for me to make sense of crypto because I've always thought in macro terms.

1:01:46When I found this chart, the reason it's also important, apart from ETF buying now by larger institutions, more and more institutions will finally come to terms with this. But when I was working at my asset manager, they were all making sense of the ISM versus the charts I just showed you versus equities versus credit versus FX. It's the same. I could show you 100 charts with the same correlation across a number of different assets. Excuse me. but this now all of a sudden if I was to bring this back to my old employer and show them this it's like guys you have to redefine your risk on risk off grids you've got equities at one extreme you've got bonds at the other you've got uncorrelated assets somewhere in the middle right like gold for example and all this means is that if you're bullish on the business cycle bitcoin should be the asset that you go to it's not equities anymore it's not msci world It's Bitcoin.

1:02:45If you're bearish, this is the one thing you don't want to own just because of the volatility. So it's just about redefining your risk on risk off grids. Now, again, has the ISM, sorry, has Bitcoin, now that, excuse me, Bitcoin is priced in a lot of the acceleration in ISM, is this now the peak? Well, no. This is, again, a chart shown in another format, really something Raoul was talking about earlier. But this is the ISM, advanced 15 months and inverted, versus our GMI, Weekly Global Liquidity Index. Now, the reason that something like this works, you hear people all the time, oh, the Fed, they're behind the curve.

1:03:29And guys, the Fed's behind the curve because their mandate is behind the curve. They operate at a six to seven month lag versus ISM. I'm going to show you this in a second. And that's because they're focused on lagging indicators. So what this is telling you is that central banks intervene with a lag versus the business cycle to support it via liquidity injections as it means it's like a life raft for weaker economic growth momentum. So over the next, like we're projecting basically into 2025, that we'll see liquidity rising as a result of weaker economic data, which is now behind us. But because they work with a lag, this means liquidity will continue to rise from here.

1:04:09And this was another chart that Raoul had referenced, but we didn't have in the pack, but that's because we have it here. Again, there's an 86 % correlation between Bitcoin and liquidity. So again, Bitcoin works in line with the liquidity cycle. if we're talking about something that we mentioned earlier as well, FedNet liquidity, which is basically just the balance sheet minus the Treasury General account minus the reverse repo facility, Bitcoin's currently pricing in that number around 6.5 trillion. The current number in FedNet liquidity is 6.1 trillion. Okay. But we are, so what is that? 7%, 6, 7 % premium.

1:04:49We're expecting FedNet liquidity to go much, much higher from here as the debt refi cycle, via the work that we've done on the everything code takes hold, right? It happens in two stages. Rates come lower first. Then that means that debts can be rolled at more sustainable levels. And then that means everything can be put on the balance sheet at the later stage. That's phase two. So in any case, Bitcoin is just front running the liquidity cycle expecting more liquidity, which we agree with. So there's nothing wrong with that. And so if anything, on the previous chart that I showed you versus ISM, Bitcoin should just hang out there until such a time that the business cycle peaks and rolls over sometime in 2025.

1:05:26The next point I'm just going to talk about with liquidity, and then I'm going to skip over to the dominoes. I just think that this is important. And this is something not a whole lot of people focus on, is this is excess liquidity. So excess liquidity has started to rise again. And this is one of the liquidity factors, or sorry, this is probably the liquidity factor most correlated on a forward-looking basis with equity PE ratios. And so this was a big signal for us back in Q4 of 2022 that the business cycle was turning because liquidity was, in this sense, leading versus PEs injecting. And the way to think about this rather is better I explain it first is excess liquidity is the amount of liquidity available in the system or the economy in excess of what is being consumed by nominal GDP, which in theory can then be financialized, right?

1:06:23Because it's liquidity that's sitting on the sidelines, which isn't being consumed. And so that's the way that this works. And as you can see, it's very correlated with PEs. So again, this gave us a strong signal back in. And also, Julian, it fits in with that chart that I showed earlier with the rising of P ratios because it's driven by liquidity. And you're proving it here in a very clear manner that debasement of currency actually is the dominant factor in a P ratio. Right. And again, because, you know, as Raoul just said, because the crypto and liquidity and tech are also correlated now, post 2008, the fact that this is rising is good news.

1:07:06And again, I haven't seen anybody else talking about this recently at all. So this is definitely on our radar. And again, sort of explains why even though crypto has priced in a recovery in advance, there's more liquidity to come. Now, a normal economic cycle tends to play out in sort of a sequence of dominoes. There's different stages to each cycle. Some data leads other data. And what I'm going to do now is I'm going to show you that, explain it to you. And then we're going to talk about our GMI Financial Conditions Index, how it is that that helped us get it right back in Q4, why we're still confident that it's working well today.

1:07:49And then I'm going to show you sort of a countdown to zero because Raul and I are living so far in the future versus current ISM because you have to because risk assets actually move ahead of ISM. using a framework for lead indicators at a six-month interval, five-month, three-month, one-month to sort of confirm or refute our views around the business cycle as we, because as I say, because we live so far in the future, because a lot of what we were calling for in Q4 of 2022 is really only coming to light now, given the long leads that we're working with. So this chart, now that we know what the ISM is, and we know that within the way that we think about the world, it's more of a coincident economic data point.

1:08:42Economists will tell you it's leading and that something like industrial production would be coincident and lagging would be unemployment. But within our framework, it's more coincident and everything else is lagging. So the way to think about this chart is that T equals zero, that's the ISM. Everything to the right-hand side of this chart in blue is leading by a certain number of months, which you can see on the bottom. And everything else on the left-hand side of this chart is lagging and in black. And I don't have all the indicators here, just to give you some context. The next thing immediately that your eyes are going to be drawn to are these colored bars.

1:09:26So you can see the green bar, Raoul and Julian, this is us. We tend to try and operate at plus nine months versus the current ISM because we have to. Because if I skip back to the yellow bar now, at three months, that's where risk assets operate. Well, actually, risk assets isn't the right term. It's where equities operate. Because as I just said to you before, Bitcoin really tends to operate at around an eight month lead time versus the ISM. So the point here is if you're focused on the ISM and buying and selling Bitcoin, and that's the only thing that you're paying attention to, you're always going to miss certainly the lows because of the way that this moves in advance.

1:10:06And then at T equals zero, as I say, after that, you've got industrial production, unemployment. Oh, and then the yellow bar, right? Central banks. This is where central banks operate. Central banks operating behind the curve. The pink bar, not the yellow bar. Oh, the pink bar. This is where they operate. Of course, they're behind the curve. It's their mandate. That's the data that they're looking at. So when you're trying to make decisions around central banks' next move, they're not looking at commodity prices. They're not looking at the ISM. They're not looking at new orders to inventories.

1:10:38And you hear people all the time, oh, well, all of a sudden they're becoming less hawkish and commodity prices are rising. I mean, first of all, commodity prices are not a huge input into CPI overall, all. If we talk about energy goods, yes, but even taken together, it's less than 30%. And second, that stuff works with such a long lead because we're not going to show this here, but we also have the inflation dominoes. So the inflation dominoes just in summary is that commodity inflation leads goods inflation, which leads services inflation. And services inflation is a function of unit wage costs, which are still falling.

1:11:12And that's really what the Fed's focused on because that's really core. So extremely, extremely lagging. Anyway. And Julian, that's the reason why the Fed always cut as the business cycle is growing. ISM is going up, they're still cutting, because they're dealing with wages and shelter, which are deflating the CPI numbers for an extended period of time. I mean, shelter is like 18 months behind. And so you tend to get this disinflationary pressure on the things they look at. Forward-looking inflation will have already gone up, but they don't focus on that. So they tend to cut late into the cycle and continue all the way through, which is why macro fall, it tends to be lots of rate cuts and liquidity because they're focused on all this lagging stuff.

1:11:58That's right. And again, just coming back to this chart, Raoul's right. I mean, CPI Shelter operates at around 17, 18 months. Then look at wages, 13 months. So people all of last year were fighting Raoul and I on wages and them being sticky. They're never going back below 5%. They have now. But again, it's just so lagging in the business cycle that it takes time for that to come down. And our lead indicators for that suggest that we should see 4 % before we see any material trend higher. And again, it's very difficult to have an inflation spiral without a wage price spiral, given services is such a large part of inflation overall.

1:12:40So this is our GMI financial conditions index. It's a regression on commodity prices, interest rates, and the dollar. And the way to think about this is it's inverted here. So as the red line comes lower, it means that financial conditions are tightening. So really, and this is advanced nine months versus the ISM, but let's just say with the lead in play, we were really at the tightest levels in Q4 of 2022 since the global financial crisis. And then it started to inflect higher as did the liquidity numbers. And so the point with showing you this chart is that Raoul and I, with this framework that we've put together, and 2022 was the perfect example, are really one of the very few people talking about the early innings of an economic recovery when everyone else is still banging the table about recession.

1:13:40And that's where we were. And what you can see is - We also bought risk assets in Q4 because we saw that bounce in liquidity in financial conditions in advance. We got the qualification that liquidity was changing, and that allowed us to buy, kind of go max long tech and crypto. So that's right. I mean, in fact, in September, that was the article that we, or that was the GMI that we published. It was, it was titled, The Turn is Near. And that was exactly when we were calling for the bottom and everything else. And that took a lot of, I mean, a lot of courage because I mean, everyone else I was talking to was, I mean, do you remember that time?

1:14:22I mean, it was unbelievable. But anyway, because we live so far in the future and because a lot of the data that you would normally wish to see to give you a gauge on how the economy is doing, be it industrial production, retail sales, capital goods, durable goods, that stuff's only bottoming now, right? So some 20 months later, the way I like to use this framework is using lead indicators to confirm my view sequentially working backwards to help me feel a bit easier about living so far in the future. So if we come back now to six months, So here we're looking at the percentage of countries with rising OECD composite lead indicators.

1:15:06This is, as I say, it's a six-month lead versus ISM, higher. Okay, good. That makes me feel a bit better. And these were all turning higher within their respective leads, which, again, helped us build confidence. Here's one at five months. Okay, good. Another one at five months. Great. ISM new orders to inventories, higher. Okay, great. And then ISM new orders, so what I showed you on the dominoes, leads by around, a month. Okay. So it's choppy. It's, you know, what, down in April a little bit. But again, it's very clear that the ISM is in the process of bottoming, especially when you look at the continued easing that we've seen in financial conditions over the course of last year and this year.

1:15:50Now, what I also like to do beyond the ISM, then now we're going to come into some of the coincident stuff, and then we're going to skip to the MIT tool, is look at real coincident economic data as defined by the economists. So now all of a sudden, exports are starting to improve right on schedule, given the ISM leads this by four months. So the point is, you cannot wait for exports to improve, to take a view on risk assets, just because of the lag. You know, just two weeks ago, we had the Q2 numbers for conference board CEO confidence. This operates at a coincident pace versus the ISM. So there's no lead or lag.

1:16:35What it showed is a modest increase in sentiment yet again. And CEOs have an excellent sense of what's going on in the economy at a high level. So I think this is encouraging. So seeing all these things, counting down from nine to zero, and then in some cases, minus going negative right into exports. And also now what I'm going to look at here, earnings starting to improve with the ISM five months forward is encouraging. Now, at the beginning of this year, we had said that there was six rate cuts being priced into the curve. That means that the market was expecting the Fed to cut rates six times this year.

1:17:17We said that three of those could be priced out. We already priced out four, so more than I was expecting. But even then, it hasn't really mattered. And it hasn't really mattered just because the market's attention has shifted from the Fed, which makes sense because over the last two years, the Fed has been in inflation fighting mode. And this is a really complicated environment for risk assets. But now the market shifted their attention over to earnings, which we were in earnings recession last year, and now they're starting to improve. And so it's less about the Fed now, and it's more about earnings.

1:17:58And so if you think about it like this, and this is actually a very important point, multiple expansion, so prices rising without any recovery in E is very normal. Okay. Prices rise with the liquidity cycle. Earnings rise with the business cycle. So last year was a story of multiple expansion and people will come out to you and say, I mean, prices are rising, but earnings are not. I mean, how are these valuations justified? It's very normal. It's just, as I say, prices are following liquidity, earnings follow the business cycle. So it happens with a lag. So that's telling you is that this year is just about justifying the valuation premium that was built last year as prices started to rise.

1:18:47And that's currently happening. But it needs to happen. We need to see even more follow through here now that additional rate cuts have been taken off the table. So as long as earnings continue to improve, we're going to be in good stead.

1:19:03And if we look at that was trailing earnings, which I showed you before, this is essentially analyst expectations for 12 months out of the line. And they're rising as well. And this also helped Raoul and I in Q4 when the analysts became as bearish as they had been since COVID and before that GFC. We just said, no, this is too bearish given what we see on liquidity and macro front. And here we're again reaching a cycle high. So far. So again, so far, so good. And this is the focus for markets now. So as long as earnings improve, we should see a broadening out of cyclical equity and performance, unlike we saw last year, which made sense because earnings hadn't yet bottomed yet.

1:19:52And what we saw was tech discretionary long duration assets perform, but not traditional cyclical plays. So that's what I'm going to talk about now, getting through it. So how to invest across the business cycle. So to understand this, we have to understand the four seasons of asset allocation. Now, the slides are going to change a little bit here temporarily just because these are charts from the MIT, so the macro investing tool that we have on Real Vision, just taking out of one of the documents that I've presented. Just to confirm for people, the macro investing tool, you get it in Real Vision Plus or you find it in the Real Vision marketplace.

1:20:33When you sign up to the platform for free, when you want to download this document, this huge document, get the AI notes. You just click on the bottom left icon. It opens the marketplace. You can flip down and see more about the macro investing tool. It's part of the plus and above. So it is, I think, the single most powerful thing to help you in your investing journey. So this is where it all ties together. And Julian's made it kind of idiot proof for everybody. So off you go. Yeah. So I'm just going to start by saying this framework has been used for a long time by some of the best investors in the world.

1:21:15And if you look back in time, what you'll hear time and time again is that the two most important things to solve for when it comes to investing are differential changes in growth and inflation. And so growth and inflation are the two most important things. Now, with what Raoul said with liquidity, there's no question liquidity is the most important driver of asset prices, both in the short term and the long term. But the point here is that liquidity is really a function of where we are in the business cycle. So there's a degree of multi-collinearity between growth and liquidity. So it's keep things simple, stupid.

1:21:56It's better to focus on growth and inflation. So we break them down. First of all, the text on the right-hand side is just for you. It's to help you better understand what's going on during these macro regimes outside of just growth and inflation. So if we talk about spring, and I'm going to run through these quickly because we still have a lot to go through is that's a disinflationary boom. That means that growth is accelerating, right? Lead indicators for growth. And inflation momentum is still decelerating. So that's macro spring. That's where we were all of last year. I'm going to show you that in a scatter chart a little bit later.

1:22:34Summer is then an environment where growth momentum is still accelerating, but the second derivative of CPI or PPI is starting to accelerate. That doesn't mean inflation is accelerating, it just means the pace of decline in year-on-year terms is slowing down. This is the discount mechanism for risk assets. And that's why this is important for this framework. And what's also nice about this framework is Raoul and I always give our views because we have views. And I think it's important that everybody has views, but this is a data-dependent approach. So irrespective of our views on inflation, this model runs in the background and it keeps you honest.

1:23:15And I built it for that, in fact. If you watch some of my previous videos on MIT, if you go to the Real Vision platform, you'll see me talk through this. Are you accusing me of being dishonest? Is that what you're trying to say there? Very, very. And then fall is stagflation, right? So a lot of you will have heard that before. It's when inflation's rising and there's no growth. This is typical kind of classic late cycle. And then winter is the most risk-off macro regime. It's when growth is slowing and inflation is slowing. And so these are the four seasons for macro. Now, this is the latest table.

1:23:56And in fact, I'm going to update this next week for April. And what's important here, well, is a couple of things. So don't get overwhelmed by this. And again, if you are overwhelmed by this, please go see one of my former videos where I really break this down in detail because I'm not going to have the time to do that today. But essentially within here, we have a composite lead indicator for growth for all these countries. And for inflation, we're located somewhere midway up the supply chain. I think if you go into any further up the supply chain, you tend to lose the signal. The same can be true of certain PMI surveys with respect to prices.

1:24:37So I'm located somewhere in between, somewhere middle of the supply chain. Now, the point here is that this is March data. And again, this is older now. I'm going to update this last week. But the growth data within these composite lead indicators leads the ISM by two to three months. So you're looking at, and in some cases, data is always lagging, right? Because it's just the way it's released. But if I was to plot these growth indicators versus the ISM or versus, I just use the ISM as my kind of go-to example. You'll see that as we progress through this presentation, but it would be the same for Canada, Germany, France.

1:25:17Now, what's also important is it's not so much about the individual countries as far as the signal from the noise here. It's really about focusing on the table at the bottom, right? So looking at the percentage of countries scoring within each macro regime. So what you can see is that last year was about macro spring. I'm going to show you this in another format in a second. And this year, we've seen an increasing number of countries beginning to score into macro summer. And so what's really important here is to identify regime changes that are trending. That's, and because once you identify that, these tend to be multi-month, multi-quarter trends in asset allocation.

1:25:52So it makes the acid allocation and selection process a whole lot easier. And then as you can see, winter, here I used a rolling 12-month window just because that was a little bit easier to digest. And it's what we use for MIT. But we have this going back much, much further. But then the table becomes a little bit too like, you know, Skittles, rainbow colors. It's too overwhelming. So this is just the 12 months. You can see that, again, winter's come down significantly. And when we look at the same chart I just showed you, but in time series format, I just wanted to show you this because much like the seasons are linear kind of here on earth, it's the same thing within the macro seasons.

1:26:39So peak summer, then you get peak fall, peak winter, peak spring, peak summer. This isn't always true and it oversimplifies a business cycle. but it's most of the time, this is the way it works. One good example for when it didn't work out like this was COVID, right? That was a situation that was an exogenous shock and we went from spring straight back to winter, but that's not something that you can pick up within a quantitative tool or approach that has to be me or Raul or someone involved in markets who is reading something, that's where you have to have some discretion. So I show you this because what I want to come on to is this, and I'm just going to use this as a real-time example to talk you through one example, and then we'll move on to Macro Summer.

1:27:37So this is the leading indicators which are embedded into the model itself. So what you're looking at is the percentage of countries scoring within each macro regime. And so if we look at recovery, and again, this will be updated next week, and I'm pretty convinced we'll see an improvement and expansion. The way to think about this in simple terms, again, is recovery is, let's say, PMIs below 50, so in contraction territory, but improving on a month-on-month sequential basis. Expansion is you're above 50. So you're now growing. The economy is now expanding. And it's expanding on a sequential month-on-month basis.

1:28:24Slow down above 50, but peaking. Contraction, you're below 50 and slowing. So what you see in this current environment is that recovery is probably topping out here. expansion is accelerating. There is nothing going on in slowdown, which makes sense. And contraction is plunging. So just to give you views on the way I used this back in 2021, so slowdown really, so that blue line, really started to pick up in July of 2021. And this makes sense because the global PMI itself, which you can track probably easier than building something like this out peaked in May. But what was important there was not the fact that it peaked, but it started to show up in my numbers by July because what it's telling you is that the pace of decline is accelerating.

1:29:16So this was the first thing. It's not a red flag, but it's a yellow flag. Then by April of 2022, the contraction quadrant started to follow. Okay, so it's the exact opposite to what we're looking at today. And this gave me the confidence coupled with what I was seeing on the liquidity and lead indicator front that we were going to transition into what we call macro winter. And from there, the market went on to fall another 23%. I think peaked the trough, it fell around 25%. So a lot of that could have been avoided following something like this on growth momentum. Finally, in September, October of 2022, the contraction quadrant peaked out at an extreme.

1:29:59Recovery started to go higher from really October onwards. So here we're talking about 2022. And this, coupled with what we were talking about with financial conditions, liquidity, really gave us the confidence to stick our neck out back then. So the point here is that right now, there is no significant shift in regime taking place. The two risk-off quadrants that you would worry about are not building. There's zero economies are in slowdown and contraction is still falling. So that's the way to think about this. That's exactly the same way to think about the seasons. The seasons are growth and inflation.

1:30:40This is important for asset allocation. So I'm going to show you that in just a second. And then when we're just looking at pure growth, this is directionality. So you can think about it as beta, some fancy. It's the direction of the market. Whereas let's say the seasons are the outperformance. So trying to achieve superior performance versus the market over the long run. And just if we look at a slightly longer term chart, so here we're looking at the percentage of countries with lead indicators above trend, we're still looking at an environment where these are rising. A late cycle economy sees this number much, much higher historically, closer to 80%.

1:31:15So there's nothing hot about the economy yet. And in fact, as I pointed out before, growth momentum is still weak. But now what we're seeing is apart from a greater percentage of countries entering recovery, meaning that they're no longer as deep in PMI negative territory. They've actually come back or improved a little bit. We're seeing a larger percentage of countries globally that are now above 50 and rising. So that's 35%. So this is good news. So now if you couple that growth view with what I talked about on the second derivative of inflation, Now, the second derivative of inflation is rising because of the massive easing of financial conditions that we saw last year.

1:32:00But again, the second derivative is the actual year-on-year change of the year-on-year percentage change. It's complicated. I've explained this many times in my video, so I'm not going to go into it now. But essentially, if I project out that white line, it says to me that by June of this year, it could be around zero. So what would you do? You need to look at June of last year. And in June of last year, CPI year on year was at 3%. We're at 3.4%. It doesn't tell you that the CPI is rising, but what this does tell you is it keeps you locked in to macro summer just because this is the discount mechanism for risk assets.

1:32:44They're not worried about the year on year comps. It's the second derivative. So that keeps us locked into macro summer for now. Now, just two more charts. Two weeks ago, when I presented the MIT update, the mark, the cross asset class performance. So let's say the macro signature embedded in asset class performance started to price in macro winter on a month to date basis. So the green bars, Whereas the year today, you can see that it's been most consistent with summer. Now, spring and summer share similarities because they're both risk on. Tech still does well in summer. It does less well than it does in spring.

1:33:25But because of the secular tailwinds, we think it needs to do well. But you get a broadening out of cyclical performance in summer. But a lot of commodities, there's similarities, which is why it's still elevated. Anyway, it makes sense that the market would start to price in a cycle regime into macro winter. The market was lower by around 5%, and pretty much across, I mean, we're talking about the S &P 500, but most assets were down. So that makes sense. And that was also driven by the withdrawal and liquidity because of tax season. So if liquidity is one of the markers for the seasons, we had this little mini season within, which was tax season, where money came out of money market accounts and went into the treasury general account wasn't spent.

1:34:07It drew down liquidity. It gave it a little mini winter season before we start going back again. Well, two things about that. First of all, that liquidity drain, as Raul just pointed out, is more technical in nature. It has less to do about the overall trend in liquidity. The second thing is that this is exactly why this process becomes interesting because there was a liquidity air pocket, which was driven by incoming tax receipts. And it was literally a drain of liquidity because they came out of, as Raul said, money market accounts. That took the market lower. Now, all of a sudden, the market's pricing in winter, but we've got a different view.

1:34:50So the last time we had a signal like this, where the macro regime was supportive. So we were in spring at the time. We started to see a little bit of summer, but it was mostly spring. Winter was coming down, but we had a, what, a 10%, correct me if I'm wrong, Raoul, it was about five or 10 % correction in the SAP, was on the news of SVB back in March of last year. So we saw pretty much an identical chart. The market wanted to rotate into macro winter, but the economic fundamentals were consistent with a continuation of the cycle. So what we wrote in GMI, I'm going to read it to you, at the time that this was happening, so we saw a chart like this, was year to date, market pricing has been consistent with macro spring.

1:35:43However, due to the banking scare back in early March with basically all assets falling, the market started to discount a transition to macro winter again. This is exactly what we want to see as we have a different view. When the market starts to move against you, but you have strong conviction backed by solid economic fundamentals, opportunities to enter new positions and add to existing ones are created. So when you have that conviction, but the market's pricing in a different scenario, and then you look at what the market's doing today with the NASDAQ and the S &P now back at all-time highs, you can see not only year-to-date is the market profile consistent with macro summer, but the month to date market profile is also consistent with macro summer and winter has come down considerably.

1:36:31Now, talking about the MIT asset tables, I'm going to talk you through one of the tables. We also have these tables on the platform for commodities, for FX. We have it for crypto as well. So talking more about phases when Bitcoin dominance is the theme and when it's not. Credit, bonds, style factors, growth. We've got a lot of these tables, but this is just one. And what this is, is a regression on growth and inflation going back as far as I can with these assets. And in certain cases, that's as far back as 1950. But generally speaking, I can cover everything back to 1960. So it's a long regression.

1:37:24Crypto, of course not, but as far back as I can with Bitcoin. So what you can see is that in macro... And again, the green arrows mean that the asset class performance is statistically significant during that macro regime. Yellow doesn't mean it doesn't perform. So you see that and you're like, oh, well, I don't want to own, let's say, Euro stocks in spring. No, it just tells you that there's better things to own, right? Because that's the whole point of essentially a Z score. So what it tells you is in macro spring, equities and credit do well and crypto does well. And then let's just skip down, forget the regions.

1:38:01Let's just look at sectors. What does well in an environment of rising growth and subdued inflation. Consumer discretionary, technology, semiconductors, home builders, everything else is sideways to flat. Those were the best performing sectors last year. I mean, the market profile was completely consistent with the economic fundamentals last year, despite what everyone else might be telling you. It was textbook macro spring. Now look at macro summer. So equities do well. Oh, but commodities do well. Okay. So commodities weren't doing very well in spring. No, there are commodities that outperform the abroad commodity index.

1:38:42So if you're a long short fund, you can long certain commodities and short others as you go through the business cycle with what I was talking about before as there's cyclical and defensive commodities. But commodities only really start to do well in summer because of the inflation component. And then just look at the sectors, energy, materials, industrials up, financials technologies up, regional banks up. So I'm going to talk through some of these now. The only thing I'm going to say is, as Raul alluded to earlier, is that when we finally decided to bring this tool to Real Vision, we had said that this is not a trading tool.

1:39:20It's not a trading tool. It's an asset allocation tool, which helps us focus on owning the best assets across the capital structure as we progress through the business cycle. Okay, this is not a tool designed to help you identify a 5 % correction. And it's fine to trade around sentiment. It's fine for you to do that if that's your thing. The purpose of MIT is, is this 5 % to 10 % correction, as I showed you before with the market pricing and the lead indicators, so on and so forth. Is this 5 % to 10 % correction a buying opportunity or is it not? That's what this is about. So, buying dips are spring, summer, to an extent fall, but that requires more active management on my side because there's a lot of things going on in fall, so it can go one way or the other.

1:40:13But winter is a sell the dip kind of thing, if that makes sense. So, welcome to Macro Summer. So, we're going to go through what's happening here at an asset allocation level. I think this will be interesting for most of you. So as I said before, Bitcoin, and Raoul's also alluded to this, Bitcoin generally front runs the ISM because it moves in line with our financial conditions index. Bitcoin leads the ISM by eight months. Our financial conditions index leads the ISM by nine months. Ruby. Because basically, as I say, this is all down to the easing of financial conditions. The NASDAQ, it's the same.

1:40:51In fact, it's the same for all spring assets. Long-duration equity play where earnings are further out tend to do well in an environment of spring. So that's discretionary home builders tech. I just went through them. They all had an incredible year last year, which is very typical during macro spring. Now, the Russell 2000, this is interesting because only now are we starting to see an environment where the Russell can do well. because... Sorry, can you just flip back a chart a sec? I just want to clear something up for people. So people might look at this and go, well, NASDAQ's done. You've got to understand year-on-year rate of change.

1:41:32If you look at previous times, it's stuck around this 40%, 50 % rate of change for the rest of the cycle until you get to fall or even to winter. So what it means is you're compounding growth on top of compounding growth still. So it doesn't mean the asset itself peaks. It means the rate of change has reached its maximum velocity of 60 % year on year, but you're still going to see 40 % plus year on year rates of change. Yeah. And just to that point, I mean, if you look at the NASDAQ, if you pull up a chart on the NASDAQ, it's gone up in a straight line since Q4. I mean, it looks like it's like that.

1:42:15So what all this is telling you is that that degree of advancement is now going to start to slow. It doesn't tell you that the NASDAQ is peaking. Year-on-year comps are tricky, but Raoul's right. And you can see even in 2020, the equity market, of course, led the ISM higher the whole way. And it just pauses there and waits for the business cycle to top out. Then it goes, okay, earnings are lower here. I'm out.

1:42:45Now, the Russell 2000, as I said before, is pricing in really current ISM, but nothing forward-looking. But this makes sense because the Russell 2000 is really linked to what Raoul and I call the old economy. Therefore, it's highly dependent on the earnings cycle. So this is why personally, I like things like small caps, materials, industrials, financials, banks. I'm going to talk about these a little bit later. I almost got shot by talking about banks earlier in the year. I actually did it on Maggie Lake's show. And I remember I came on and I was like the only guy advocating banks, but I'm going to show you why that made sense so that you can do this for yourself.

1:43:28So again, pricing and current ISM, nothing forward-looking, but makes sense because these are style factors which are attached to the earnings cycle. They don't operate with the liquidity cycle like long duration plays like technology. US materials, same thing, right? But then you look at the technicals. And again, I did originally a video about materials, industrials, a broadening out of cyclical performance, which makes sense within a year where earnings have started to improve. And therefore, we should get a year where CapEx starts to improve. These things should do well. And you saw them score well on average within a macro summer regime.

1:44:12So now materials broken out, retesting, push higher. Banks, remember what I said about banks? I mean, again, I just remember talking about this and just being so much pushback, exploding higher. Why? Again, first of all, it's a year-on-year comp, but again, it hadn't priced any of the forward-looking stuff at the beginning of the year. Now banks are moving higher, broken down to their trend, pushing higher. Copper is telling you, so copper specs, this is the speculative positioning in copper. So what this tells you is that people are taking larger and larger copper positions as a percentage of total open interest.

1:44:53And frankly, it's at a high, what, of two years now? So they're telling you something. They're telling you that they're anticipating a move higher in the business cycle, which we could have told you was coming, what, now, Raoul, 20 months ago? I mean, with the work that we've done. And then look, copper has gone ballistic. It's gone to an all-time high. And now I want to come back to copper and this copper-gold ratio, as I talked to you about earlier, because in an environment where the business cycle is bottoming and starting to move higher, copper outperforms gold. And what are we seeing? A huge wedge breakout of copper versus gold.

1:45:35So this is macro summer. And this is validating. You want to be looking at something like this, meaning, oh, okay, we're currently ranking within macro summer within the growth and inflation quadrants. This is happening. Oh, okay, you know what? That makes sense, as opposed to why is this happening? It's happening because of where we are in the business cycle. Now, the last thing I'm going to talk about, and I think this is really important, is altcoins should be thought of as, well, they behave a lot like small cap equities. So altcoins should be thought of as small cap tokens, which is exactly what they are.

1:46:19So I'm not telling you anything new here, but they're small cap tokens, like a small cap equity, And Bitcoin should be thought more of as a large cap growth equity, right? So Bitcoin operates in line with the liquidity cycle. All coins operate in line with the business cycle, right? Because these projects are smaller. It takes more time. Actually, I have the chart. Do I have the chart? Yeah. It takes more time for liquidity to filter through both the real economy and into real the risk assets, which is why it impacts altcoins as a percentage of Bitcoin market cap with a lag. So here's FedNet liquidity, which we've talked about a number of times, advanced 12 months versus altcoins as a percentage of Bitcoin market cap.

1:47:06Now, again, what we're expecting here is very similar to what we saw in 2020 and 2021, where altcoins begin now that the business cycle is dropping, but if I just skip up for a second, haven't priced in anything forward-looking, but working in line with current ISM, very similar to other classic cyclical recovery plays in fiat land versus this is crypto world, will start to gain market share versus Bitcoin. It feels like they were at the right stage of the cycle. And this is because, as I said before, as liquidity and speculative behavior starts to trickle down into earlier stage projects and smaller tokens, this can happen now that more of the crypto space has been made whole with Bitcoin reaching new all-time highs in March.

1:47:59So unless, of course, you bought at the highs in March, in which case you're probably banging your head on the table, but I think you've probably recovered 50 % of that down move now. So we're now down, what, around 10%. But in any case, I have some charts for you a little bit later. And now I'm just going to hand it over to Raoul for a second to discuss NFTs are trophy assets. Look, I know this is a lot for everybody to take in. I don't think anybody's sat through a two and a half hour macro presentation before, but it is important. And we're trying to show the depth and breadth of what we do and how you guys can learn from this to understand how the world works.

1:48:40So You stop picking up silly information on Twitter and thinking that's the answer. It doesn't mean we're always right, but we're trying to give you the framework of understanding of how the world actually works. We've gone through the liquidity cycle. We've gone through the everything code. We've shown how the business cycle matters. We've shown how you can just turn it into a model that we've done with MIT to get you in the right direction in what you're doing. So you're not trading things you shouldn't be doing. You're investing in the right things. Now, GMI is an extraordinary body of work because we cover everything from secular trends, which we've shown to you, but we do everything, including the rise of India and all sorts of things.

1:49:23Business cycle analysis, as you've seen, technical analysis. We've not really showcased how much technical analysis we do. We have obviously trade recommendations based around this. We cover geopolitics, social trends, technology trends of the exponential age. We look at the future and what the future is going to hold for the global economy and for all of us. We look at the past, how we got here. We look at liquidity. We look at macro models and we try and make sense of everything. So here's another nice one for you that we came up in our work, was nobody else had done this before. And I presented this and I've talked to you guys about this before, is that NFTs are a trophy asset.

1:50:04They actually exhibit very regular kind of trophy asset style macro pricing. So how this works is trophy assets like fine wines, these are generally driven by when people have excess liquidity themselves, i.e. you're making money. Usually stock markets are all-time highs and your earnings are going up. So think of the earnings story Julian said. Well, guess what? You start buying fine wines, sticking them into storage as assets because they go up in value, or you end up drinking them. Julian and I were talking about this before. We both buy fine wines. None of us ever sell them. We just drink them.

1:50:45But either way, bed net liquidity, like the altcoin cycle, is also the fine wine cycle, bizarrely enough. now. Bitcoin is actually the lead because of what we talked about on fine wines. So it tells you that if you're a fine wine collector, you should be loading up now because fine wines are going to skyrocket for the next 18 months to two years. And that's pretty interesting to me. But where it gets really interesting is when we look at things like NFT users worldwide versus crypto market cap. It's all based on the same thing. If you think of the art market in crypto, people buy art like I've been buying art, recycling gains out of my Solana to buy long-term assets.

1:51:35So I've been buying Xcopy and Beeple as a long-term store of value. So as crypto market cap goes up, people recycle the profits into trophy assets. It's the same as the fine wine market. And guess what? It's the same as the secondhand luxury watch price market. NFT users as a proxy for demand for NFTs matches exactly secondhand watch prices of Rolexes, Patek Philippe's and everything else. They're all driven by the same thing. Everything is macro and macro is everything. And that's why I've been looking forward. It's a thesis I'll talk in more time about about why I end up buying some really trophy NFTs.

1:52:22Because long-term, these assets appreciate against debasement, but they're also incredibly scarce. So they tend to outperform debasement very well over time. And my chosen vehicles have been Xcopy, the artist plus Beeple. But let's flip back to the money shot now that a lot of you are here for. You've sat through a ton of charts, a ton of understanding. Hopefully, you've gone to the Real Vision website, realvision.com. You've downloaded this doc so you can go through it in detail. You've read the notes. Now let's come to crypto and what comes next. Julian, over to you. Yeah, thanks, Raul. All right, so crypto, what comes next?

1:52:59We're going to try and breeze through a lot of these charts just because this is already, I think, a two-hour presentation and we want to spare you from sitting too much longer. But again, I think I have some good charts for you. So first of all, again, let's just back up and zoom out. If you're new to crypto, 20 % corrections are pretty much the norm, right? We've had five of them so far this cycle. This is not going to be the last one. Get used to it.

1:53:28However, with what we just witnessed with the pullback in the entire crypto space, but again, we use Bitcoin for a lot of these charts, as Raul said earlier, just because we have the history. It's very typical behavior around the halving. So essentially what happens is into the halving, you get a rally, a strong rally. Then you get some sideways chop for a period of time. And then post halving, you get a fairly large dump before prices start to recover. So I think that's where we are now.

1:54:01And despite all kind of the mid-curving going on around the halving, I'm going to buy today, I'm going to sell tomorrow. It's going to be April 14th, which is the low. whatever it is, this is really the only chart that matters from an investor's point of view, I would say. If you're a trader, that's your thing. I'm not a trader, I'm an investor. So this is more appropriate for my time horizon. And post-having, we've always seen prices much, much higher, which again, goes in combination with the macro that I've shown you, the liquidity framework, both on a secular point of view and a more tactical point of view.

1:54:39It's exactly the same thing with Bitcoins reaching new all-time highs, post a 75 % drawdown, higher 100 % of the time. And it's also very easy to get caught up in crypto narratives, given that almost everyone has a view today. And that's a complicated place to be in, especially if prices are going down. It's very easy to get scared. So what I found extremely helpful over my investing journey is all when in doubt to zoom out. And so these are the previous Bitcoin cycles versus the current cycle. And what you can see is that the big picture remains that we're still fairly early in a cycle from historical context versus both in respect to both time and performance, except for the Bitcoin Genesis cycle.

1:55:33So that was the 2011 cycle. But as you know, the market structure back then was, I mean, mostly speculative and looks completely different than today. So it's not really comparable. And when we look at the cycles that look most similar today, the 2015 to 2018 cycle maps very well. And so again, just illustrating how early we still think that we are. Now, does this need to play out perfectly? No, and I'm sure it doesn't. But contextually, it feels about right. And that's what's important here. Additionally, we're just nowhere near a plus three standard deviation move in some of our sentiment metrics.

1:56:14So this is an aggregate of things like RSI, different oscillators, stochastics. And you can see that anytime if I aggregate, I started with like 12, I got it down to, I think, eight or so. That made sense. We're just not there yet. And that would... These are some of the things we use for the asset allocation framework for XPAM when we're looking at which types of hedge funds to allocate to, where they are on the risk cycle. There's a whole bunch of factors that we've built around the macro crypto thesis that we haven't got time to show today. But a lot of these all come together to allow us to try and allocate correctly according to the cycle within the framework of the fact that we're allocating to hedge funds, not to the market itself.

1:57:02Yeah, right. And then if we just talk about, so again, if I just get back to this, if we cross three debt standard deviations, I'd be concerned. But if I look back, if you look back to, let's say, 2016 cycle, we had a lot of these 1.8 standard deviation moves, and it was choppy, but we were in the trend. So just don't get too lost in narratives around peak cycle. I I really just don't think we're there yet. And then if we just skip to alt season for a second, and I've got three more charts and then I'm going to leave you, love you and leave you, is that, so this is altcoins. So at XPAM at GMI, we track 300 altcoins outside of, let's say, Ethereum, Solana, and of course, Bitcoin.

1:57:47So this is a percentage of assets outperforming, excluding stable coins, Bitcoin over a rolling 90-day period. And if we just look at this point, so we've talked about presidential election years. We've talked about Bitcoin halving years and the debt refi cycle years. It's all the same cycle. It's one big cycle. So in 2019, the percentage of assets outperforming Bitcoin over a rolling 90-day period, so the percentage of altcoins, was running at just 5%. Okay. Then by Feb of 2020, it went up to 67%. Then in March of 2020, it fell to 33 % and then skyrocketed higher over the next six months, reaching 83%.

1:58:30So 83 % of altcoins were outperforming Bitcoin over a 90-day period. Now look at what's happened again in 2023. July of 2023, the year before the Bitcoin halving year, the presidential election year, the debt refi cycle year, so the everything code cycle year, we fell to 5%. Then in Feb of 2024, we skyrocketed to 65%, and we've since come down to 31%. Now, and again, when I think about what I showed you as far as altcoins as a percentage of Bitcoin market cap versus the ISM acting like the Russell 2000, but not pricing any forward-looking, it makes sense here now that we're entering the phase where altcoins should outperform Bitcoin.

1:59:20And if we look at the previous instance that this happened, right? So, and again, March of 2020, I didn't take because at the time Bitcoin was at 4 ,900. This was the low of COVID. So it's not really fair. So what I did instead is I took the 8th of May level, which was 10 ,000. And then I basically projected out altcoins, XE, so I think that's more fair when talking about altcoins, versus Bitcoin market cap into the peak of the cycle, which occurred in November of 2021. And altcoins went on to 20X from here. And Bitcoin went on to 7X. And again, 7X, it's nothing to turn your nose up. We're just at this cycle transition now where I think altcoins begin to gain market share versus Bitcoin.

2:00:13And this is another chart that a technical chart, we do a lot more technical analysis in Bloomberg, but sometimes we do them in data stream. This is the tool that we're using here. You can see it was a huge wedge pattern. And we flagged this well before it broke out back at around 300 and oh no, what was it? Yeah, it was, it was 350 billion back in Q4 of last year. And we've since gone to around 800 billion. So this is the top 300 coins. And we think that we can get to$7 trillion or so. This is one of the things that gave us confidence in our Solana bet. We could see this breaking. Solana looked like it was the chart.

2:00:50We had a macro fundamental story. We had a technical story. And we had a Solana story. They all came together. And that gave us maximum conviction. That's right. And yeah, that was a big trade at the time when we put it on. And again, the market cap has since doubled since we talked about, originally spoke about the banana zone. And so I think we think that this brings the entire space above a 10 trillion in this cycle. And the everything code, just to kind of wrap things up, is why you see charts like this. They don't need to play out perfectly, but prior cycles are repeats of current cycles just because of this debt maturity schedule and the rolling of the debt refi cycle.

2:01:36And so, I mean, I think we could hit 20 ,000 on Ethereum this cycle and into the peak in 2025. Let's see, right? But what I also - It's not forecast so much as it's possible just based on repeats. Now, it may be different. doesn't mean that. We're not saying Raoul and Julian banner headline think ETH goes to 20 ,000. We're saying, listen, just understand how this could play out here. Yeah. And I think that's an important point because I think most people are still scarred from the previous cycle. I mean, there's different probabilities of how this cycle plays out and we'll figure it out by the time we get to fall.

2:02:19It could be a blow off top cycle where things go a lot further than people expect. Don't forget, this is the first time we've ever had institutional buying. And there's also the probability that this could become a truncated cycle like we had the last cycle, although we tire a slightly lower probability to that. But nevertheless, this is a chart I wanted to show you. And then the last two charts on ETH, and then I'm wrapping up. I think I said that like five times now already, is that these five wave down cycles that we've seen, and I show it to you here on ETH just because I'm following up with the chart that I showed you previously, they're visible everywhere in crypto.

2:03:01So you get a huge pump higher, a sell-off, a wave two higher, a wave three lower, a wave five, oh wait, sorry, wave four higher, and then a final dump lower into full, let's say, capitulation, and then prices move higher again. And I see these time and time again. In fact, you can see it here over a different time horizon. And so I think that in our view, this was the pause, the halving, the correction that we've seen, the 20 % drawdown in Bitcoin, more for altcoins. This was the pause that refreshes. The economy is still on track, right? Next up is rate cuts. The global rate cutting cycle is already happening, which is Raoul's going to show you now.

2:03:46And so this leads to an environment where we feel bullish out into mid 2025. So now we're going to pass it. I'm going to pass it back over to Raoul for the last section of this epic macro presentation, the supermassive black hole. Over to you, man. Okay, I'm going to bring it all home now. You've heard me talk about the supermassive black hole. the crypto black hole. You've seen everything that we do to reach the kind of conclusions that we do. And now I'm going to come to the conclusion. The conclusion is straightforward. We're dealing with the technology adoption. It's the fastest pace of adoption of any technology that's investable.

2:04:29AI is not investable right now. And it's been growing at twice the speed of the internet. If we assume that it grows at the speed of the internet, which would be probably a false assumption, it should grow faster for the rest of this year or so, we get to the end of 25 with 1.1 billion active wallets. Active wallets are not actual users because people have multiple wallets, much like people have multiple IP addresses, which is what this is showing too. We're comparing it to IP addresses. So we get to 1 billion wallets. That's a huge number. And that drives the adoption of the space based on Metcalfe's law and the valuation.

2:05:06Then if we extrapolate out into the future, I keep saying this space is going, this is the biggest macro opportunity we have ever been given. It's been the best macro performing asset of all time. It's the best risk adjusted reward of any asset in all history. It's an alien asset class. And that trend of$2.5 trillion today to$10 to $15 trillion this cycle to$100 trillion by about 2030, 2032 is driven by this adoption curve. That's when you get to 4 billion active wallets by the end of 2030. That's a mega trend. That's all you need to know. $2.5 trillion,$10 to$15 trillion,$100 trillion. You're trying to capture that.

2:05:46You're trying not to fuck this up because this is the gift you've all been given. And everybody can put 10 % of their wages in or whatever it may be, because it's a democratized, fractionized asset that's globally homogenous. Everybody in the world invests in the same product. Bitcoin is the same in Nigeria as it is in Brazil, as it is in the Cayman Islands. That is the gift to humanity. We get to invest in the infrastructure layer, the network layer of this incredible new technology. And on top, they'll build the applications layer, which would be the new Googles and Facebooks of this Web3 world.

2:06:22So that's what's driving this trend. The debasement of currency, plus the ridiculous adoption of this technology, which is only great. You hear every institution now saying, well, we want to build real world assets on Bitcoin rails. The exchanges are going to build on it. The corporations are going to build on it. We're already seeing so many people building on top of these rails because it's just the better system. Then we've got digital ID layer. We've got the stable coins layer. We've got so many things being built. That's going to keep driving this logarithmic chart, which gets us to, you know, at the end of this cycle, we don't know, but you know, Bitcoin, according to our work, could get to 400 ,000, could even go higher than that.

2:07:01Sure, it could be truncated too, but it doesn't matter because the trend goes longer and your game is to stay in the trend. Even if you take some lifestyle chips off, let's say at the end of this year, just so you take economic pressure off yourself, it allows you to continue to participate in this trend. Because if you don't, you try and get cute and try and time it. You'll fuck this thing up. My job here is trying to unfuck your future. So you can understand where I get these little mimetics from. How to unfuck your future. You're being debased upon. Here is your answer. don't fuck this up is don't miss out on this trend.

2:07:39The crypto supermassive black hole, as I'm about to explain to you, means that really there's only one asset that matters. And then we'll come on to the final one, which is the banana zone that you all love. So again, we go back to the total liquidity chart. This is how you are being fucked. This is what you need to unfuck yourself from is the debasement of currency. Crypto is giving you that. It's also that tech adoption, and it's your route out. So at XPAM, we built up this table that I put on Twitter, I put it on every month. But look, it's a noisy table. But what it's showing, if you go to the bottom of this, the light blues are that each year from 2011, crypto is the best performing asset three years out of four.

2:08:27In the fourth year, it's the worst. So macro winter, It's a terrible asset. Well, terrible asset, the lows are always higher than the previous lows. It's in a secular trend. You don't even need to worry about it. If you just own it, you just own it. But the other years, it outperforms everything else, bar none. But then when you put that together, even with the numerous 85 % pullbacks, Bitcoin's done 20 million percent returns. ETH, which started later in 2016, less than 324 ,000 percent returns. Solana has done 8 ,300 % returns since 2021. When you look at the annualized performance, Bitcoin is 139 % a year, ETH 146, Solana 203.

2:09:15Then we go down to the next best performing asset, technology. This is the NASDAQ, not the exponential age basket that we built in ProMacro, GMI, and the exponentialist, different variations of it. This is just the NASDAQ. It's on 17 % returns. So the NASDAQ has managed to outperform the Fed balance sheet, the global liquidity plus inflation by a few percent, actually by 5 % the year. That's okay. Nothing else, no other asset has outperformed the debasement of currency plus inflation, not one. The S &P roughly keeps you flat. Everything else, your future self is poorer from owning it. This is profound in your understanding of asset allocation.

2:10:05Once you realize this, you realize you're wasting your time trading other stuff. You really are because you are not going to compound the returns that you need for your future vision of yourself to be wealthier. So let's take NASDAQ, which is the best performing equity market in the world, bar none, over the last decade. And we look at it versus Bitcoin. It's down 99.92%. Get your fucking heads around that. That's the difference between the next best asset beyond NASDAQ. It's alien. This is the biggest macro trend of all time. And it's so powerful that anytime you take money out of crypto and put it into anything else, you're going to lose money.

2:11:00So therefore, the only thing you can take crypto money out of is lifestyle, because lifestyle is priceless. Everything else is priced on a relative basis. and what you find is everything goes down. It's why a lot of people in crypto hold out to buy property until they're ready to, because property gets cheaper if your denominating currency is Bitcoin or another crypto. The supermassive black hole means that this beautiful technical chart of global liquidity means we're about to start the next leg of liquidity, which we talked about before. The next leg of liquidity is the driver that will continue the next leg of this market.

2:11:41And the central banks are showing that liquidity is coming because then cutting rates says, hey, we're ready for liquidity to come. Remember the reverse happens in crypto winter and macro winter. They start hiking rates and they start withdrawing liquidity. Here, they're increasing liquidity and cutting rates because they want stimulus. That is your friend, your biggest friend. And when those factors come together, technological adoption, people investing in the space, liquidity starts flowing, you get the banana zone. And the banana zone is just all of these factors coming together for macro summer and macro winter.

2:12:23That's what lies ahead as far as we can see. So hopefully I've shown you over this two and a half hours, the sheer amount of work that we do in this space. And it's here to share it with you. It's kind of like open source. Here you go, guys. If you go to realvision.com, you can download this entire presentation so you can follow along and you can figure some of this stuff out yourself. If you want us to figure it out for you, there's the macro investing tool for those who just want the business cycle elements. If you want the deep dive, it's obviously Global Macro Investor, but that's for hedge funds, crypto hedge funds, family offices, asset managers.

2:13:05If you want a lighter version, a cheaper version, but that really gives you some depth, then that's the Real Vision Pro Macro service. If you want to know about the technology side and technology investing, that's the exponentialist for all of these together. What we've got here, again, is how to unfuck your future. why you don't want to fuck this up the supermassive black hole and the banana zone things you hear from me these sound like memes but they're not they're based on thousands of charts and thousands of hours of research i really hope this helps you understand it again on real vision uh realvision.com i will create some ai notes to summarize this so you've got simple summary you can create your own notes on the platform.

2:13:57You'll have the doc as well. So you've got everything, everything that you need to make sense of everything. And hopefully that's what we've done today. So, and again, the other point being is the macro investing tool will be part of Real Vision Plus. This is an announcement. I don't know if it'd be fully announced by this time. Those of you who are subscribers in its own right, don't worry, we'll look after you. but we think it's too important not to share. All we're trying to do between Twitter, this on YouTube, all of the different products is to give you everything that you need, including the asset management firm, to make sure that you all participate in the greatest opportunity of all time.

2:14:39Anyway, thank you so much for your time. I know your time is precious. Hopefully we've delivered something precious for you and we will see you next time. If you like this, please subscribe to the YouTube channel if you're watching this on YouTube. please like, please comment. We put a huge amount of effort in this for you. And if you can just do that for us, it helps us a great deal. Anyway, see you next time. Take care. We hope you enjoyed this episode. At Real Vision, we arm you with the expert knowledge, time-efficient tools, and a powerful network to help you succeed on your financial journey.

2:15:14Get a taste of financial freedom with our free offer at realvision.com forward slash free. Thank you.