Raoul Pal Is Back as Real Vision Crypto Evolves

24:59On the long end, I still think it is delusional. I think we can go to 5 % very easily. I actually think we will get there and we'll get there in a couple of days. I don't know when that's going to hit, but when it hits, it's going to be like the guild market. Everyone thinks that the bond market is going to be this ballast to their portfolio and I've been arguing that it's going to be the anchor that drags it down. I think the primary risk that people need to be positioning for is the risk that the Fed declares victory too soon. So to me, the setup is right for oil to come alive here. And this is just going to be a regeneration of the great rotation, which really treated all the way back to where it started.

25:46RAOUL PAL, Lots of people asking your opinion on this, obviously, because of the broad anticipation of rates going lower and bond yields dropping. What are your thoughts? RAOUL PAL, Well, don't listen to me because I've been wrong. But I've thought bond yields will come lower. And I've spent a long time actually thinking about this. I say that flippantly. But actually, I spent a long time thinking about this because all of the business cycle indicators, all of the inflation, forward-looking inflation indicators, all of the unemployment and indicators are all suggesting the bond yield should come down, and that inflation continues to fall both at core level and at headline level, and that unemployment continues to slowly grind higher.

26:26Why are bonds not suggesting that? Well, equity markets already started pricing in the fact that there's more liquidity in the system. I think it's down to supply. I think it's really down to supply because the Treasury has to issue a lot of bonds. to finance both the interest payments from the bonds that are coming from maturity, set at higher rates, and the new borrowings that they have. The bond market is already trying to absorb a bunch of this stuff, and there's just not the ability to absorb it all. So supply is pushing yields higher for the time being as the Treasury rebuilds its coffers.

27:08The issue is there's about That's$6 trillion of debt maturing between now and the end of the year. What the Treasury have been doing is issuing short-dated notes generally to finance it. The reason they're doing that is they don't want to lock in 5 % rates, because before you know it, the budget deficit explodes high. There's a game that I think they're playing here, is the Federal Reserve have to, and all the central banks doing the same game, because I think they're all in cohorts, part of this everything code theory. They are going to try and hold this rates up as long as possible to make sure inflation undershoots.

27:44Because when it undershoots, they have the cover to cut rates back down to trend rate of GDP growth, which is like 1.75%. So I think the narrative will break by Q4 when we'll start to see the Fed cutting aggressively. In the meantime, do yields go higher? I don't know. and watching them closely, there's a risk that they do. And I'm stuck in a bond trade that's losing money. I've had a great year on technology and crypto and having offset some of that in bonds. So I still think bond yields end lower. But there is a risk that they lose control here because of the supply side. And there's not enough liquidity in the bond market right now.

28:30And therefore, I think that increases the chance of some yield curve control, whether it's like an intervention in the bond market. And we've seen that in the past. It's not uncommon for the US to do. Japan obviously does it. The UK did it recently as well. So listen, I think this turns around, but could it squeeze higher first yields for sure? Yeah, and that's the interesting thing. There are complex dynamics here at play. And as you mentioned, always this idea of things that are unfolding along multiple time frames. So you've got the supply and demand component that could lead to a squeeze higher.

29:03And yet, at the same time, there's this longer term view. I mean, right now, we're upside down about 75 basis points on Tuesdays. And when you look, I don't know if we can bring up the chart, Archer, but we've got the expected three-month average secured overnight financing rate path that just looks continually downward. I mean, if you look at that chart, look at the image that we're showing on that screen right now, the expectation of the markets based on futures contracts is clearly for a drift lower. Yeah. RAOUL PAL Yeah, so again, it's this issue of the Fed staying as long as possible because they really want to have the complete green light to do what they want, crush inflation expectations.

29:39The market knows rates are too high, obviously. So they're saying, listen, you can't do this for long. And the Fed keeps shunting them along. And this is the higher for longer argument, which has been pretty accurate. And the question is, is how fast does it reverse? And the market never usually forecasts this right. Normally, once they do cut, they cut faster than the sofa curve or the euro dollar curve used to in the past. So we have to wait and see. But it's all to play for in Q4 for me. RAOUL PAL, MD, All right. So maybe higher for longer, but then also maybe cutting steeper and faster than expected.

30:20RONALD BOOTH That's right. That's exactly what's in my head. RAOUL PAL, Yeah, it's really very interesting. Raoul, anything else on fixed income? RAOUL PAL No, I think those are the main things. Really get much higher than these kind of levels, and we could get an unruly spike. And nobody wants that. The Fed doesn't want it. None of the world's central banks want it. But it will also cement their ability to absolutely crush anything else in terms of inflation, even though there's no inflation in the system anywhere. So I kind of think a spike higher in yields actually leads to more cowbell in the end, because you have to somehow control it.

31:04ASH BENNINGTON Yeah, well, actually, you alluded to that there earlier when you talked about the idea of this potentially having more likelihood increase of yield curve control. Talk a little bit about that. That's an interesting wrinkle. So if rates become unanchored from inflation, economic growth, or anything else, it says there's a structural problem in the market. We know there's massive structural problems in the lending markets because there's too much debt. And if you lose control, the Federal Reserve can't allow loss of control. And don't forget, they're just being downgraded because of the shitty mess that the US is in because of its political impasses and everything else.

31:43is if they lose control of the bond market, that's the world's anchoring asset. It should not be allowed to happen. So in which case, they will come in and stop it. And we saw that in March of 2020. They did the same where rates got ridiculous on the other side going down, just completely all liquidity dried up, and the market broke. We have a risk that we could break the market again here, and in which case, they will step in and say, we'll have to increase quantitative easing and buy bonds. But you could do it at a fixed price and say, we'll buy all bonds at 4.25%, or whatever the number is, that they say, look, enough is enough.

32:26RAOUL PAL, for people who are relatively new to this, explain what that means when you say things could break in the bond markets. What would that actually look like? RAOUL PAL So we know that the regional banks have problems with their bond positions. And if bond yields keep rising, they keep losing money. That makes them illiquid. And with high rates, there's money moving from deposit accounts in banks that are only paying half a percent and moving to money market funds that are paying 5%. So they're losing their deposits, and they've got losses here. Every time you take a deposit out, you have to unwind some of the trades, but they're all down.

33:07There's a huge, massive mark-to-market loss that goes on. They're having to borrow money from the Fed to fund that right now, in this financing facility that the Fed set up. Also, if the bond market breaks, it means that there is not enough participation from the key participants, banks, asset managers, market makers, to keep market liquidity. So prices start gapping around, setting interest rates which were not the intention of the Federal Reserve. And if they're setting interest rates that were not the intention of the Federal Reserve in a very meaningful way, then it can create problems. So it is very risky here, what happens to the bond market.

33:55so people need to keep an eye on it. The equity market might not like it either. Even the crypto markets may not like it if yields go up, because that puts pressure on everybody and their borrowing costs. Now, most mortgages in the United States are longer duration. But we've seen credit card financing rise. We've seen car leases rise. We've seen all forms of short-term financing rising, corporations rolling over debt if they've got short-term debt, that's going up. And the US government themselves need to fund their bloody debt. And they're rolling over all of this debt. And the last thing they want to do is try and roll out 10-year debt at 4.5 % when the last time they were paying the interest on it, it was 1.5%.

34:36Suddenly, you triple your interest payments, and then you have to borrow more money to have the interest payments because the taxation rate's low. We've got some dangerous dynamics here, which is why they need to cut rates. RAOUL PAL Yeah, I don't want to be cynical or reductionist here, but for people who are trying to get their heads around this. It almost seems to me like when you go to your doctor and you say, hey, the medication you gave me has some side effects. And they say, don't worry, we've got another medication for that. You essentially do all this quantitative easing. You push rates down far below where they naturally ought to be to try and control inflation.

35:10And then you spin up things like reverse repo facilities and interest on excess reserves. There's always another medication to counteract the side effect of the prior - ED HARRISON. Because at first principles, there's too much debt. And we can't manage it. And we don't have the money to pay for the interest, let alone actually pay off any of the debt. And that's the dirty truth. And we don't raise enough taxes because economic growth is trending lower over time due to demographics. So you don't have the money to pay the interest. You can't pay off the debt. So you're in this trap where you have to, everything is about managing the debt.

35:45And from 2008 onwards, the number of these ridiculous parts of the plumbing system that got invented to stop that bit broke, and then that bit broke, and that bit broke, it's because the whole bloody thing is broken, and we're just trying to tape it up, which is why, in the end, I saw this coming back from 2008, 2012, is why I got into crypto. I got into crypto for this. You could see that the end game of the debt, and in fact, I've done some videos called the end game, make it impossible to deal with. Now, most people think there's a debt default. I don't think there is a debt default. I just think that the use of a central bank balance sheet goes exponential, which increases the cost of assets, but nobody's wages go up.

36:26It's like a mutualization of these interest payments across the general population without raising taxes. It's the same thing. But it taxes the - And by the way, the decline in purchasing power in the currency. And that's a mutualization of losses amongst everybody. But rich people hold assets, so they're protected. The less well-off have incomes. Their incomes don't go up as much as the assets, so they're poorer. So that's where we're getting this income disparity, wealth disparity. And it keeps increasing. And it's not going to stop for a while. RAOUL PAL Yeah. You said these words, I think, which are just really so important, which is this idea of first principles, expanding debt.

37:06And then you have the challenges with demography and growth that's driving the increase in debt because you aren't able then to make it on your earnings. So you borrow more money. ED HARRISON Exactly. And even at nation state level, as you borrow more money, because you're not getting enough taxes, because the economy is growing slowly, because it's an aging population. So the trend rate of GDP growth goes down. So they're all in a trap. And it all kicked off in 2008, when most of the developed world hit 100 % of GDP in debt. And then we had a debt jubilee, which was essentially debt jubilees are normally, you don't need to pay your debts back.

37:46The debt jubilee we got in 2008, it only recently made me realize what it was. It's like you don't need to pay the interest. We're going to make interest cost zero. And then after that, we're going to monetize all the interest by printing money. So you don't pay any interest. So we can manage the system. But it has a lot of unintended consequences. RAOUL PAL, MD, A kind of soft debt jubilee in your view. And then also add to that one more thing, which is the decline in productivity. DAN BALPIN, MD, MD, PhD, PhD, PhD, PhD, PhD, PhD, PhD. DAN BALPIN, MD, MD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD, PhD.

38:16And that's generally driven by demographics as well. So if GDP growth is driven by the magic formula of population growth plus productivity growth plus debt growth, debt growth reaches limits in 2008. So basically all debt growth now is just interest payments. they issue new bonds to pay the interest. Then you've got demographics, which means that population growth over time slows down, and in many countries goes negative. So then the only way of driving GDP higher, because your debt to GDP matters for that, the only way of doing it, because GDP is all of the income that pays the debt. So GDP growth pays the services, the debt interests.

39:01The only way is productivity. The only way of doing that is technology. RAOUL PAL Talking of technology, I just got a message from one of our social media producers that someone has just donated€49.99 to ask you this question, Raoul. Are you still interested in Solana? RAOUL PAL Yes, it's still my second largest holding. I really like it. It It reminds me a lot of ETH in 2018, 18, 19. I think there's a huge amount of activity. I think Tolley has proven himself to be one of the better leaders and thinkers in this space, in the Vitalik mode. I think that the developer activity is great. I think on-chain activity is great.

39:48The innovation is great. There is a probabilistic outcome that it does well. It doesn't mean I'm right or wrong. But so, yes, I'm still very interested in Solana. Yeah, and that question comes to us, I should say, by Stephen Weston. Stephen, thank you. Thank you for the$49. I shall buy myself a nice drink. Well, it'll never come to me. So thank you. But I appreciate it. I take bribery like this. It's fine. Here's a question, slightly different, but about technology, innovation, and change. This one comes to us from Edwin on the Real Vision website. What is the status of the carbon trade? ED HARRISON Oh, so looking at it now, it's just chopping around.

40:28Now, what's annoying is the California version has exploded higher. There's a UK version that's exploding higher. The European one has been chopping around now for, I'm looking at the chart, basically since January, it's gone nowhere. I think it's just building and building and building, coiling for the next leg higher. And I think 2024 is probably too early in the trade, even though we've not lost money. I've been up in it, small amounts. I think 2024 is the year that potentially doubles or more. But California is ripping. Here's a question from Ralph on the Real Vision website. Oh, boy, this is a really interesting one.

41:07Does Ralph have any thoughts on the Japanese and Indian stock markets? Boy, talk about two countries at opposite ends of the Asian spectrum. RAOUL PAL Yeah, of the demographic spectrum, for sure. I think the Japanese stock market is being driven by yield curve control and a bunch of other things. I have not been involved. But it's had a decent year, it's up 24.5 % in yen terms. The Indian stock market has always been one of my favorites, not had a great year so far. emerging markets because the dollar has been stabilized, been weaker originally. It needs a weaker dollar for it to really do well.

41:51If the dollar weakens, India should start to pick up. As rates come down, India should do better as well. India is, I think, a good story, a very good story. It's my favorite demographic play in the world, also a technological innovation story. I like it a lot, but it just feels like emerging markets aren't yet fully ready in the cycle, but it's coming very soon. I think we'll see some big gains from some of these. RAOUL PAL We're just talking about this radically different outlook from a secular perspective of Japan versus India? Yes. So Japan has massive debts, a shrinking population. So how do they get out of the GDP trap they can't without a massive productivity miracle?

42:42What they have been doing is excessive use of the balance sheet to manage the debt situation, and yield curve control has been one of their key mechanisms. As they've been doing yield curve control, their stock market's gone up. What the mechanism of that is, is the debasement of currency idea. Japan has done pretty well. I do not know the structure of the Japanese economy and how it benefits as well. I am sure there are more reasons. Again, I have not really been involved. India, 1.4 billion people average age of 28, with a massive infrastructure spending, complete overhaul of railways, roads, airports, energy, everything, a whole structure of money, the banking system, everything is being overhauled.

43:33So it's a hell of a story. And so they should have structurally high growth over time. And they do have structurally higher inflation. Young populations, if you remember the US in the 70s, had higher inflation. As the population matures somewhat, inflation comes down, and then you get the real kind of demographic tailwind. So India should be a good story this decade and a hell of a story next decade. Here's a question from Claudio on the Real Vision website. Boy, this is a question that has a lot of threads. Thoughts on Apple versus Ledger and Solana? I see Solana has a phone and Ledger has a wallet and Apple has the network and is working with Goldman.

44:09What's your take on whether Solana outperforms Apple or does Apple just keep going? So mixing and matching here, traditional markets and crypto. So Apple is up 65 % this year and Solana is up 150%. Crypto assets are more volatile. In a bull market, they will go up more. Risk adjusted, Apple has probably been a better bet than Solana risk adjusted this year. But I do not look in a risk adjusted world. It is like if I am going to put my 1 ,000 bucks on one bet to make the money, which is how I think about these kind of trades, I would have taken Solana, which I did. Although, I have got trade recommendations for Pro Macro for Long Apple, and it has been a phenomenally good trade.

45:01RAOUL PAL Hey, Rob, talk a little bit about what you said there in terms of asset allocation. You say for these kinds of trades, how do you think about these buckets in your head in terms of the high growth, high risk aspect of your portfolio? ROB BOWDEN So I'm 100 % high growth, high risk. Never used to be. But I've got income. And I've also seen what I think is the biggest macro setup of all time, which is the exponential age meets crypto meets quantitative easing. Those are so explosive, and I think it repeats over the next few years, that I want to have all of my excess savings in that, because it's a once in a lifetime opportunity to me.

45:44Now, and that's proven out. I've been that same way since 2020. And it's been very well. I'm still up huge amounts in my crypto positions. Technology positions I only started last year, they're all up a lot. Let's see if I can stay on the ball and it works out. But that's my thesis. Your thesis may differ. That's my thesis. And I have an income stream, so I'll use it that way. I'm lucky enough to have houses paid for and stuff like that. So I have to worry less about the future part of that. Other people, if you're much younger, then that asset allocation makes sense. Because if you're buying a 401k, then your excess savings should be in taking huge risk, as long as you've got security around where you live, your job, and maybe your 401k investments as your retirement future.

46:37But then you can take risk. People in the middle wouldn't do that. I would be much more risk averse. Yeah, obviously, important to point out that individual objectives, risk factors, are going to differ. So this is something that you're talking about from your perspective. But you also said it there, Ralph, so people don't misunderstand. When you say you're 100%, you're talking about your liquid assets. Obviously, you own businesses, you own real estate, you have other assets. So it's not 100 % in higher yield. RAOUL PAL, Not of my net worth or whatever that, no, of my liquid available capital.

47:09So if I've got capital available for keeping in a bank account or investing or doing other stuff with, all of that is in high-risk assets. And that's not for everybody. Yeah, that's not for people. I explained why, because I've got security of assets, one of my future security, and I've got security of income. So therefore, if I want to take a larger speculative bet, I can, because I think the opportunity set is outsized. And as I said, if you're younger, you can take a risk because you've got plenty of time if you lose some of that capital, if it all goes wrong, you've got time to do that. So young people should take risk.

47:49It's the middle stage, that kind of 40 to 60. It really depends on your own setup, where you are, where you are in your life journey. Don't go for the Hail Mary trade and hope it works out because that doesn't work. You need to structure these things. So you structure your life as a portfolio. But if you're in the middle there, you structure your portfolio really carefully as well. Okay, here's an interesting big picture question from Crypto Bull God on YouTube. Raoul, how do you believe the metaverse will be born? Do we need Unreal Engine style graphics and cryptocurrencies for creating an in-game economy to be used?

48:27So I don't believe in that version of the metaverse. I believe everything where we live our digital life is the metaverse. I believe everything. Zoom is a version, early version of metaverse. I think there are some with avatars and some with digitized humans, some with AI, some with not. Some are game-like economies. Some are AR versions of the world, like Apple are building. Some are more VR versions, which Facebook is building. And all of these become our digital experiences. That's all it is. It's the manifestation of all of the component parts of the internet. I don't think there's a snow crashed one world where we all live in a game-like environment.

49:16I don't think anybody wants to do that. But it is this overall digitized space that we live where the separation between physical and digital really evaporates. So I think every trend that we see around us is doing this and accelerating it. And therefore, we need blockchain to be able to, if we're living more in the digital world than the physical world, which most of us are nowadays, because we're living so much online, then we need a system of payments, store of value, because everything in a digital world, you can create infinite amounts of. And that makes everything worth zero. So think of cloud storage and all of this kind of stuff, music, all of it.

49:58So the only way of securing value in an excess supply world is creating scarcity. And that's what blockchain does. So then we can move assets, interoperable assets. These are problems we've got to solve. And that's not quick. Moving whatever you've got in the meta Facebook world, moving across the Apple world, well, are they going to allow you to do that? Are they not? So then people, do they build new opportunities where you can have interoperability? It's all to play for. But this is the next 20 years to play out. You know, and also that sort of begs the question about what's going to happen from a regulatory perspective, because obviously right now we live in this world where it's very, if you go back 20 years, what is a security?

50:42What isn't a security? It's relatively clear. That had been established here in the U.S. in the 1930s, elaborated on in the 1940s with the Howey test and others. But we're getting to this point where technology is starting to blur those distinctions and how that itself hashes out from a regulatory perspective. Also a very much a big open question. The problem is US regulation is run by a bunch of baby boomers who only reference the past. We have to rebuild laws and first principles around this new world. We have to figure out how to deal with AI. We've got a lot of really existentially important things that can't be just shoehorned into something from the 1930s, because that's how a boomer wants it to be.

51:27We need to rewrite all of this stuff. And other governments are doing it, and the US is not. But it will get forced to, whether it's the power of the people or just the politicians are so old now that they'll be replaced by younger people. Yeah, here's one that comes to us on exactly this point from JW2 Waterman on the Real Vision website. It looks like Bitcoin ETFs won't get approved anytime soon, talking about regulatory stuff. What does Raoul think is the next catalyst for Bitcoin?

51:59I don't know when the BlackRock ETF comes. It's just a ludicrous waste of everybody's energy, the slowness of the SEC in approving stuff. But we'll look back in a year's time, it won't matter what date it was. The next catalyst of Bitcoin could be anything. I have no idea. It could be the Fed cutting rates, it could be the bond market losing control and people wanting that. It could be anything. but I'm just not a short-term guy. The last time I traded crypto was January when I was adding. I added in June, October, and January. I just don't trade it. I just buy and hold it and observe. And just everybody gets so wound up about prices.

52:43The easiest thing is just buy the stuff, stick it in your ledger. It's not doing anything. It's a lot less stressful as well, particularly if you're not using leverage. It's so easy. Here's another question about short-term catalysts for you, Raoul. Brandon on the Real Vision website wants to know, why do you think the California carbon ETF has moved so high, so fast, and Europe has not? I don't know. A good friend of mine hit me up about this the other day. He's been talking about this trade for a while at Global Macro Investor, my research firm. He's been talking about this as the great opportunity, and I missed it.

53:22He's a really smart trader as well. I missed it. I don't know. But my guess is that, because these are all driven by regulation and forcing people into carbon allowances, so something there is causing the supply-demand imbalance. We know Europe works the same way, but it comes in fits and starts. RAOUL PAL, we've covered an incredible amount of ground here today. You try and do final thoughts and key takeaways. We've talked about so much. Big picture, Raoul, what would you like to leave our viewers with? RAOUL PAL, Big picture to me remains the same, is that I know everybody's tempted to look at interest rates now and inflation now and then try and make decisions about their assets and their investments.

54:12And macro and crypto is included in that. It's actually about living in the future. People are saying, well, there's going to be a recession. Look what happened. That was all priced in last year. You don't get an 80 % bear market equities in crypto and a 70 % bear market in growth equities just for no reason. That was the recession being priced. This is the recovery being priced. So the future world has lower interest rates. The future world probably has quantitative easing. The future world probably has GDP growth recovering. So you're supposed to be short equities then or long equities when you live in future world.

54:51You need to invest in future worlds to make money. RAOUL PAL Yeah, Raoul, as we're talking about key takeaways here, one of the things that I feel very comfortable saying I'm unequivocally bullish about is the technology that we're developing at Real Vision, the Real Vision 2.0 platform, something I'm excited about, something you're excited about, something that a lot of us at Real Vision are excited about, and that's going to be coming out, I believe, in the next month or so. We don't know the exact date yet because it's still very much a work in progress. As we leave this conversation, final thoughts about what's happening on the Real Vision platform and the direction it's going to move the Real Vision community?

55:25Look, we explained on this show what we're trying to do. We're trying to take people from just getting information to turning it into knowledge and then creating wisdom. That is the same journey, essentially, that we're creating via the idea of knowledge times tools times network equals success. The new Real Vision platform will give you everything you need to grow and to increase the chances of the success that you want, how you define it. And people watching this who are watching this for free, you can get in now before we close the whole thing. And the opportunity to participate in what we're doing is a great one.

56:12And it's$20.14. 2014 is when we started Real Vision. So just sign up. You get the free trial. It's an incredible, the free trial. The$20 three-month subscription, I promise you, will be the best$20 you have ever spent. Finally, the other way of getting into the Real Vision community and participating is the Real Vision Collective. That comes, you can play the game that I will, is ETH going to go up by year end and can I get part of a special prize? That NFT, great artwork, gives you a great community, a lot of fun to be had. That's the other one. That's.069 ETH, what,$125. You get crazy value, and the option, the opportunity potentially to participate in a big prize if ETH goes up.

57:09There you can see the artwork. It's just cool. It's fun. Life is sometimes not fun in finance, but life in NFT and And Web3 is fun. RAOUL PAL, thank you so much for joining us. RAOUL PAL, Great to be here, Ash. And good luck, everyone. We'll see you again. We're not dropping crypto programming. We're just embedding it in everything so you get more value out of it all. So you'll see a lot more from us in really interesting ways. RAOUL PAL, That's it for today. Make sure to check out our website where you can sign up for the Real Vision Essential membership for just$20.14, again, for three months at realvision.com forward slash last chance.

57:46That's realvision.com forward slash last chance. By the way, here's what we got in store for you next week on our pro crypto platform. Beth Kindig will be interviewing Mark Yusko on Monday. On Wednesday, Elaine Lee will speak with the head of the Web3 Foundation. On Thursday, I'll interview the chief legal officer at Ripple. That's going to be a fun one. And Peter Pinkossoff will be back with the latest technical trader. That's it. Thanks for watching. Have a great weekend, everybody.

58:21what's up revolutionaries thanks for tuning in for more content like this head over to realvision.com and get unfiltered access to the very best brightest and biggest names in finance