Raoul Pal’s 2025 Market Predictions ft. Jimmy Connor from Bloor Street Capital

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1:07Please take a moment to give it a five-star rating. It truly helps us continue to bring top-tier content. Thank you so much. Join me, Raoul Pal, as I go on a journey of discovery through the macro, crypto, and exponential age landscapes. In The Journeyman, I talk to the smartest people in the world so we can all become smarter together.

1:32Thank you very much for joining us today. How are things in the Caymans? I can't complain. It's a bit cold today. Look, I've got a sweater on because it's 75 degrees. This to me is like Arctic weather. Yeah, yeah. Well, I am in Toronto and I can assure you it's significantly colder. So there's many beautiful islands in the Caribbean. Why did you decide on the Caymans? By random accident, I was shark diving in the Galapagos. I'd had two dreams of my life. One was to live in the Mediterranean and one was a tropical beach. I love diving. I love white sand, turquoise water. And I was living in Spain.

2:09I was on this dive boat in the Galapagos speaking to a bunch of people. I said, I've got this other dream. It's this tropical beach. And they're like, well, we're from the Cayman Islands. You should come down there. And I was like, no, it's not really what, because Grand Cayman is a bit more suburban. I'm like, I want nature. They said, well, you could try this crazy island called Little Cayman. It's sort of weird. And I came down to Little Cayman where I am today. I live between Grand Cayman and Little Cayman. I bought my house in Little Cayman today. I came down here day two. I bought a piece of land and built a house, which was a brave thing to do.

2:40It's an island of 150 people, not the easiest thing to do to build a house. And you've been there for how long now? 11 years. Ah, fantastic. That's a great story. I've never been to the Caymans. I got to check it out sometime. If you've been around Bitcoin, you've heard the term HODL and you've heard Ledin. For over six years as the leader in Bitcoin-backed lending, Ledin has helped Bitcoin holders unlock liquidity without selling their BTC. With a focus on transparency, security, and trust, we've built a proven track record with tens of thousands of clients. But don't just take our word for it.

3:11Check out our reviews on Trustpilot and social media. Ready to see what your Bitcoin can do for you? Visit leaden.io slash borrowing. See leaden.io slash legal for terms and disclosures. Product availability varies by jurisdiction. so let's move on now and i want to talk about the economy and i want to get your opinion on the global economy and if you have any concerns when you look at the various regions in the world whether it be asia europe or north america so generally speaking the economic cycle and i'll use the ism survey institute supply manager survey from the u.s as the best guide has been subdued.

3:51So even though we've had equity markets and stuff very strong, the economy's been subdued. So normally, a growing economy, you should see the ISM above 50. GDP has actually been reasonably good, but there's something going on in the kind of manufacturing sector that is still sluggish. So the cycle has still been relatively slow, which has created this bifurcation of like tech stocks, which are not based on debt dynamics or real world expenditures. It's a very separate kind of cash flow that they're earning. The traditional economy has been sluggish. Globally, Europe's slow. They haven't picked up yet either.

4:34The UK is a bit of a mess. Canada's slow. And then we go to China, and China's got a full-on debt deflation playing out. So bond yields are collapsing. They can't stimulate because their currency is too weak and they don't want to lose control of their currency. Everybody's desperate for the US to weaken the dollar because the dollar is way too strong for everybody. So the strong dollar usually slows the global cycle. Now, Trump's coming in. The probability is he'll do the same as he did last time, which was the dollar's too strong because the US needs to export goods. And a strong dollar means less exports, which means a larger trade deficit.

5:12So we're kind of a little bit in this no man's land where everything is slow. All the forward-looking indicators of the economy are suggesting because the liquidity that went in and financial conditions over the last six months, they tend to be forward leading, suggests that the economy should pick up significantly this year. Now, China's the one problem child. We have to, as I said, see the dollar weaken, but also the Chinese need room to stimulate. So then they can try and stimulate their economy. Now, the reason they're seeing this debt deflation is the same that we've all had similar issues, is too much debt, aging population doesn't generate enough GDP growth to service the debts.

5:57And what you get is this big problem. And they've got it in the real estate sector, much like we all had back in 2008 and 2012 in Europe. They've got it in the banking system, much like everyone had in 2008 and 2012 in Europe. They've got the same set of problems because their demographics just are falling off a cliff. Hi, Raoul here. Listen, I think we've got until 2030 before the economic singularity arrives. Now, it might not be the exact date, but it's around then. So we have about six years to figure out how to unfuck our future. I've put together a report to help you called Prepare for 2030.

6:33It's going to help you take the first steps in that journey to make sure you're secure past 2030. So just click on the link below and start your journey now. So you expressed some concern about the U.S. economy. and when I look at the US economy and I see the same thing in Canada, but it's like you have this, you have two different economies. You have people that are doing extremely well and then you have another group that are not doing well. And in spite of the fact that the government is saying the economy or the GDP is growing at two and a half to 3%, they say they got inflation under control, the S &P and the NASDAQ trading at or near all time highs.

7:11There's still this sense that things are not really as strong as they are. Do you have any other concerns about the U.S. economy? And where do you see it going this year? Do you think you can chug along at two and a half to three percent? Yeah, I don't have any structural issues with the U.S. economy. I think that bifurcation of the two different worlds people live in is real. Don't forget the average person is dealing with very high mortgage rates, very high credit card debt interest rates. They're dealing with still low cash flows from their regular businesses. We're not talking about tech giants here or changing the world.

7:52We're just talking about people who run small local businesses. It's still not great. And we have to get rates lower and stuff for that to happen. And the inflation, yes, the rate of inflation has come down, but the price is stuck. It's still sticker shock every time you go anywhere for dinner, you're like, oh my God, how did this happen? These prices have doubled. So that's a real problem. And what we need is the economy to grow. Now, Trump and his team know this. Scott Besson is somebody I've known for a long time because he was an ex-hedge fund guy and he's a friend of mine. I haven't spoken to him for a while, but he understands what needs to be done.

8:33And that's we need to get growth. So growth to me is, yes, you need to get interest rates lower, Yes, you need to get the dollar lower. Yes, you need to stimulate the US economy. You need to deregulate the economy. So all of those things on a forward basis suggest that the economy will be much stronger. Whether GDP changes much below, you know, trend rate of GDP growth roughly is about 2 % or just below it. We've been trending higher recently. Do we go much higher? Do we have a few periods of, you know, 3.5 % growth? Maybe, probably. You know, when you have a new administration, there's tax cuts, there's all of that stuff.

9:12You tend to do that. And Trump is very driven by the economy more than anything else. So I'm I'm optimistic. Do the Europeans manage to get their shit together or not? That's a different issue because, you know, they are doing the opposite. They just keep increasing regulation, increasing tax, making it harder for people. But they have the difference. They have a social security net. So it's a different structural system. And then we do need China because China buys goods from abroad. They don't just sell them to us. They also buy stuff from us. And if they're on their knees with their economy, they're going to be buying less goods.

9:50So we need the global economic system to get fired up. So we need the U.S. to Trump to do what he's suggesting is doing and allow the Chinese to figure out what they need to do. You are so right about inflation being sticky. And I noticed that in Toronto. Like I was in Whole Foods the other day and their beef tenderloin, something I enjoy very much, was$60 a pound, okay? And that's Canadian. So that's probably 45 US. And it wasn't that many years ago when it was 30 bucks, okay? And those prices are never coming down again. I was in New York City and I went out for two dinners and I was on my own.

10:27I was having to go to some event. So I thought I'd just run my hotel, go for dinner. first night was a pretty crappy steak restaurant and i had two glasses of wine a steak and a salad it was 180 bucks have you ever wanted to trade bitcoin but haven't dared try with plus 500 futures you can trade crypto without the hassle of opening a wallet with just a few clicks you can register and start practicing with their free and unlimited demo see a trading opportunity you'll be able to trade it in just two clicks. Feel ready? You can move to real money with as little as$100 once your account is approved.

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11:41The following night was a nice restaurant. But again, it was$300 on my own. I'm like, this is insane. and you go to spain for example where i spent you know i lived 10 years in spain i had a house there for 20 something years you can go to a three-star michelin restaurant go high end on the wine list in one of the best restaurants in the world and it'll cost you 250 euros you know so we've got some real problems here somewhere 100 so stan druckemiller has stated that that the biggest risk he sees to 2025 is this reacceleration of inflation. Paul Tudor Jones had similar comments. He said all roads lead to inflation.

12:31And I think their concern is that lower taxes, higher tariffs, deregulation, deportation will all be inflationary. What are your thoughts on that?

12:44I am not an inflationist. The business cycle, when it picks up, will create some inflation again because oil prices will eventually rise and stuff like that. But I'm not an inflationist. There's two different things going on. There's debasement of currency that inflates asset prices. That's continuing. Inflation itself, I see less so. And all I see ahead is a tsunami of technology that is so deflationary we can't get our heads around it. So, yes, we will get business cycle inflation. Where will inflation end up in this cycle? I think it ends up below 2 % and then picks up again and maybe gets to 4 % and then comes off again.

13:22So I'm not wildly concerned by inflation. But as we said, those prices won't fall. So we've still got that issue. But if I look further ahead, I think this is maybe the most deflationary period anybody's ever lived through because of robotics and AI. Why? We're creating infinite people, or people in inverted commas, at zero cost. I mean, Amazon now employs more robots than people. So they're the largest employer in the United States, I think outside of the Postal Service, or maybe the largest employer. But they have more robots now. And the robots work 24-7, seven days a week, never complain, never take a tea break.

14:12That is a great stat. And they never go on strike either. Exactly. They never complain. They don't have any HR issues, nothing. And so look, if you step back, it means that everybody is economically incentivized to use technology as opposed to people. That's a fact. Go to a Tesla factory. It's all robots. Go to any modern factory. So even if the re-insuring of manufacturing in the US, a big Trump thing, they're not going to employ people. It's not the 1950s anymore. This is a very, very different world where nobody employs people if they can avoid it because technology is so much cheaper and more effective.

14:55We are living through fascinating times. So I'm going to get your thoughts on the 10-year, okay? And it's been very strong. The yield's gone from 360 in September. It's up to 460, 470 now. And this is in the face of three cuts by the Fed. What is this telling us? Are you concerned at all about the 10-year yield climbing? I am because it's tightening financial conditions. It is also decoupled from inflation expectations. So it's not about inflation. so what is going on is every four years all of the major governments around the world have to roll the debt now it's this four-year cycle something i call the everything code cycle because in 2008 there was a debt jubilee of where they reset interest rates to zero all of the governments therefore didn't have to pay interest for a while so it was a break on interest so it was like a debt jubilee it's like don't worry about it guys don't pay your interest, sort out your debts.

15:53They all restructured their debts into the three to five year sector. And so four years being in the middle of it. And it's created this perfect cycle that's been happening since 2008. What has happened this time around, because we had the pandemic inflation, it's been very late for them to cut rates. Normally, in this point in the cycle, they would have cut rates back down to trend rate of GDP growth, let's say 2%, but they couldn't. so what's happening is the debt is now compounding into new debt because they're issuing new debt to pay old debts and so what you've got is a tsunami of debt that's happening which is why they need to get interest rates down so it's that dynamic that's causing it is the issuance something will give at some point either the governments are going to have to stop it because everyone's got the same problem and the UK interest rates just hit a what it was like a 30 40 year high you know it's unsustainable in highly indebted economies so they're all going to have to do something now whether it's a yield curve control idea which is they kind of as opposed to forgiving all the debt payments they say we're going to cap interest rate on government debt at x percent or you have to do QE.

17:09But certainly what they're desperate for is to add liquidity into the system. There's a tightness of liquidity that stops people buying the bonds, which is why the excess issuance isn't being bought. The other issue is the dollar's too strong. So it's expensive for the Japanese and the Chinese and the Europeans to buy US government bonds. So again, it's another reason they've got to get the dollar lower, got to get the rates lower. and then I think it will free up the 10-year. Trump has already said interest rates are too high. And I think Scott Besson's first job is to figure out this particular mess.

17:50And so where do you see interest rates going or where do you see the 10-year going? Like, does it go to 5 %? And if it does, what does that do to the equity markets? Look, I think, again, if we talk about the equity market, that bifurcation, I think it makes no difference to Google, Apple, Meta, OpenAI, none of these guys, because those guys compound growth at 30 % a year. So a 5 % hurdle rate. Don't forget, they all sit on cash. So they actually make more money as interest rates go up, which people don't realize. So I'm not worried about that. If inflation came back, then you have to discount the cash flows.

18:25But with rates up, it's not an issue. It is for the regular economy, which creates the spifurcation. and I think that look there is a risk that it goes to five percent and five and a half percent so I think there is going to be some pressure from Trump to organize this as fast as possible the other side of the equation that makes some complexity to it is Trump wants to renegotiate trade terms with everybody whether it's Canada whether it's China whether it's Europe and the best way to beat everybody into submission is a strong dollar. And so because they all have dollar debts as well. So what he's going to do is use the strong dollar as the stick and then offer the carrot.

19:14And the carrot will be we will lower the dollar if you agree tariffs or changes in the trade deficits. So let's just talk about the dollar because I can't get over the strength this dollar. It's crazy, especially against the Canadian currency. The Canadian dollar is at a 22-year low. It was down 10 % alone in 2024. But how will they get the US dollar lower?

19:44Well, really, if the US just says it wants a lower dollar, it actually tends to work. The other way is giving access to swap lines to China, Japan and others who have large dollar borrowings. So that's an injection of liquidity directly into those countries. And then they can recycle that into buying treasuries. That's usually how it works. So there's some way of the US, via the Federal Reserve, lending money into the global system to alleviate the dollar shortage that those people have. they recycle that because they have the dollars, they buy treasuries and everybody's a winner. So that is the mechanism.

20:26So then you ask, well, why are they not doing that? Why is the dollar so strong? It's because they want it strong. And the reason they want it strong is to quickly get an agreement on trade deals. So when I look at all of the elements that we just discussed, I have to admit I'm somewhat perplexed by it all because the way I look at it is Trump is coming into power. He's going to do anything and everything he can to keep this economy growing at 2.5 % to 3%, to keep the S &P and the NASDAQ at our near all-time highs, to keep the housing market going. But at the same time, he also wants to implement lower taxes, higher tariffs, deregulation, all of which could be argued to be inflationary.

21:11You don't think it is, but let's just assume they are. If it's inflationary, to me, that means we're going to see higher interest rates. We're going to see a higher U.S. dollar. But at the same time, Trump wants a lower U.S. dollar to bring manufacturing back home and keep that economy going stronger. How do you reconcile all of that? Well, when you listen to Scott Best and you listen to a few of the others, one of the other things, you know, why are they talking? What is this nonsense with Canada? What's that all about? It's all about oil. Trump knows, as does Scott Besson, is we need a lower oil price.

21:50Even though it's not particularly expensive right now, but a lower oil price gets the economic machine working. And they want the Canadians to pump as much oil as possible, the Keystone Pipeline, all of those things. So look, there's lots of moving parts. Some are inflationary, some take time, and others are a simple fix. A simple fix is you can add liquidity via either the Federal Reserve or via the Treasury, and you can stimulate assets. So they've got that under their control. So then somehow you need the economy to grow enough via deregulation, but you don't want it inflationary. So you're trying to keep a cap on commodity prices.

22:33There's a lot of moving parts here. So look, it's not an easy thing. And we will definitely, as the economic cycle picks up, we will definitely see inflation come back. But the question we ask ourselves is, is it coming back in a non-cyclical structural fashion where you see that chart that goes around Twitter all day about the 1970s all over again? Is it that or is it just the normal business cycle where inflation picks up and then it goes down again? So I want to get your views on the. So it's kind of it's quite a fine line to draw. Right. I think you're correct. It's like this is not straightforward.

23:12You know, we have problematic economies and it's not easy. Yeah. And I guess just a lot of uncertainty about what policies are going to be implemented in the coming months with the new administration. And what, you know, last time around, the tariffs weren't inflationary. So that's interesting, too. So it's not necessarily guaranteed because the exchange rates can offset them and stuff. So it's really not clear. But Trump came in with similar policies last time. The dollar from second week of January fell like a stone. Bond yields had backed up for the same reasons. This is all inflationary. Bond yields fell.

23:54for the next 18 months. So I think often the market can get wrong-footed by getting ahead of itself. I think to the point you're making now as well is, how long before actual large tariffs get put in place? Well, that's going to take a while, 18 months, two years. So in which case, the incremental tariff increases will be small. So there's a lot of... We all think it happens on day one. It won't.

24:33I want to get your views on the S &P and the Nasdaq now. We've had two incredible years, 23 and 24. S &P and Nasdaq up 25 to 30 % both years. I read in one of your letters, you had an incredible 2024 up 150%. One of your best years ever. I'm going to have to give you some of my money. But what are your thoughts? Do you think we can have a third incredible year in the S &P? So I'll use the Nasdaq as the best example. 97.5 % of the entire trend of the Nasdaq is driven by liquidity. So it's a 97.5 % correlation. So really what is driving equity markets is the action of the Federal Reserve plus the Treasury.

25:16And that's the Treasury General Account. That is the reverse repo. That is the balance sheet. And then in addition, it's what the global governments are doing. So global liquidity is the big driver of everything. So if we know that there is, I don't know, 8 trillion or 10 trillion of debt to roll this year, the bond market's already struggling, they need liquidity. Well, the probabilistic outcome is we're going to get a lot of liquidity. tramples the lights, high asset prices. So the chances of this being another strong year for equities is high. It will be probably volatile, probably more volatile than last year was.

25:57But I think I don't see a world in which it won't if the government rolls its debt, which it has to do. And it's the same for the Europeans. It's the same for the Chinese. It's the same for the Japanese. Everyone's got the same thing to do. And to do that, they inject liquidity. So it goes back to the point I made earlier. He's going to do anything and everything he can to keep the economy going, keep the markets going. Yeah. Number one, roll the debt. That's the single most important thing, because if you blow up your entire bond markets, that's the end of the game. So rule number one, roll your debt.