The Global Economy Is Changing Rapidly

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23:43Raoul Pal:if that happens, then this really is going to be a very, very big bull market. Absolutely. So we'll wait and see on that. Rates we looked at, rates are kind of not very happy right now. I think this is going to end up being a false break, and we'll break back down again for the reasons we've talked about. But we need to watch it. If it starts breaking up here, you want to start considering, A, what the reaction function is. remember the friend of ours quote, it's not trading the thing, it's trading the reaction to the thing. I, you don't short rates. It's what they do if rates get high, that's an easier trade and more profitable.

24:23Raoul Pal:So I think that gets interesting. Oil has been, let's go to the daily chart, fucking around for a bit. We erased the nine count, which is slightly annoying, but nevertheless, I'm not sure what the latest counts are. No, but we kind of know that they have to get a solution. Because of the election, because of the universal code. So I'm just patiently saying it will come. The other one has been copper. While I love the copper thesis, what worries me about copper is every fucking hedge fund I know is longness. We saw that at the GMI Roundtable. right? It's the easy way to say, well, I don't want to play the multiples on tech stocks.

25:10Raoul Pal:I'm just going to own copper. I mean, I get the story, but that's the only issue to me is maybe it's not as easy a trade as people think it's going to be. And maybe we see these moves a lot. The spec positioning right now is very stretched as a percentage of total open interest. So as you say, it does feel pretty consensus now. And the Chinese have vast amounts of this stuff in storage, which I think they've been using as collateral to get dollars because they've been dollar starved. Now, if they open the swap lines, do they end up selling off or unleashing inventories of copper, which is excess demand in the market that wasn't there before?

25:48Raoul Pal:Don't know. I just, it just always makes me nervous, copper. But, you know, I've also lived through some stupendous copper bull markets in the past when China came on the scene. I mean, this was a... I mean, I never forget this move. I mean, that was stupid. Yeah, 2001, WTO. 59 cents. Yeah, I mean, it's 10x in copper, basically, which is quite something. Now, could that happen again? Yes. But I think it's not as clean a trade, but I could be wrong. And that's basically what I'm looking at. Can you flip up that chart of the... Yeah. So you mean of liquidity versus Bitcoin? Yeah, the US liquidity chart, which seems to be still what's the larger influence on Bitcoin.

26:42There we go. Let's put it up now. Not yet on the screen. Oh, there it is. Yeah.

26:47Raoul Pal:I know people like Sarah Walkle pick it to pieces saying, well, the correlation, causation and blah, blah, blah, blah. Look, it looks good to me. I like the chart. Yeah, I do too. It's worked very well. And we don't expect it to be perfect. It will not be perfect. But contextually speaking, it feels like the market should be strong into the summer. And that makes sense if liquidity is the dominant factor. Yeah. And then we need to figure out how high we get and whether or not what the sentiment's like at the time. But as I keep saying, we don't necessarily need to play the TGA drain because the difference between a TGA drain with QT drain is that that's the amplifier.

27:27whereas when you have QE, either from the banks or the Fed, the TGA no longer is the amplifier, but just creates volatility around the trend.

27:36Raoul Pal:You know what's going to happen if we don't say to people, oh, we need to be careful of this, and it happens. People say, you didn't tell us. And if we do tell people it didn't happen, they're saying, you fuckwits. It's only the TGA. There is no winning for us in this. And I can already read the comment section in July, where we're being scathed for whichever we say here. So do your own research, figure it out yourselves, because there is no upside for us. Literally, future expected value from us making a call on this is negative in every circumstance. What I'm just saying is keep an open mind.

28:15Can you put up the chart of the, or if you can't, I can,

28:19Raoul Pal:of total US liquidity, including bank loans, which is important for the tech sector and everything else where the money's flowing. And I think it will reassert its dominance in crypto. So do you mean as opposed to just the banks looking at total leases? The broader US version, and then we'll look at the global version. That's this one. Yeah. And so you can see that the TGA drawdown there is less. That's now out of date. Let me see if mine is. One should be up to date because I took the latest reading, which. Yeah, no, because if I look at mine, sorry, I'm just going to. Should I stop sharing? Yeah, just stop for a second.

29:01Raoul Pal:We'll go back to you.

29:05Raoul Pal:Because I think yours is weekly. And so mine is just a bit further up that ramp. So this is a nothingness, right? Yeah, but I have the latest data as being. for total loans and leases being April 29th. That's why in my model, which is why maybe you have something else. Yeah. Anyway, it looks great. I've got them. I don't know. Anyway. Yeah. They're the points. Go back to those charts we were just looking at. Stop sharing here. So a quick break in your regular programming. If you're serious about your future, grab my free report called Prepare for 2030. I think you've got five years to make as much money as possible, and this guide will help you navigate what's coming.

29:48Raoul Pal:The link is in the description. Download it now. Okay, so that gives us, you know, that's basically, if I put the NASDAQ against that chart, it's one for one right now. Yeah. Well, we can do that. If I try, yeah, let's have a look. I bet it is. 100. Well, there you go. I have to want to scale it, but you can, I mean... Yeah. Something like that. Yeah. Be it even 8 ,000, whatever it is. But again, directionally. Yeah, whether the lead lag is slightly different or whatever. What's that?

30:25What's that? And then, you know, having taken the, I keep saying this, or sorry, we keep saying this, US liquidity bottomed right after the shutdown ended. and here I've rebased US total liquidity. Now this is the broader measure including total loans and leases and then the GMI daily liquidity composite excluding US. So that's at all time highs and then the US is also, this was the TGA rebuild and now obviously we're working that out already. So these things are, again to our point that we've been outlining in reports, rising together for the first time really since July, August of last year.

31:11Raoul Pal:Exactly. And then if I look at GMI total, which is this is the daily one. I mean, that's a thing of beauty. It is. And again, this only accounts for about 70 % of our total monthly number, but it's enough to at least tell you directionally where we are. And look, the consensus view, the backlash that we were receiving, really all through Feb. The Mike Howell backlash, I remember that well. But like Feb, March, like all the way through it, was that liquidity peaked in Q3 of last year? I mean, no. And again, the market would not be doing what it's doing if that was true. Junk spreads are almost near all-time lows.

31:50The move is back at the lows. The VIX is back at the lows. I mean, if the theory was that credit would be deteriorating, and as a result of that, credit spreads would widen, the market would be lower, none of that is actually happening. So anyway. That's what I'm watching.

32:07Raoul Pal:Also, you were building a dashboard around the pro positions and stuff. It was the average trade is up 155%. Yeah, there's a couple of long-term ones that are up a lot, but that was crazy, right? Okay, let me, should we show that or not yet? No, we shouldn't. We can't show all the positions to non-pro. Oh, that's right. That's right. Yeah, yeah. No, it's, yeah, it's, they, let me, I just closed down because I have to open it in. And let me, yes, our average active position is up 130%. We've got an 84 % win rate out of positions historically open and closed. And of the ones that are open, 25 are winners and six are losers.

32:51And the losers are not really that big of a loser either. Currently, our biggest win, well, Solana is up 200. Since we added some of the other positions like Circle, as I pointed out just a minute ago, we're up over 130%. That's a big win. I mean, since you added, this is before you and I started working together because this portfolio existed before then, but Bitcoin was added in June of 2020. That's up 900%. Ethereum's up over 900%. I mean, again, and that goes back to what you and I have always been saying, like we play the business cycle. It's important. It's why we track everything. You have to pay attention to inflation and growth and things like that.

33:38But over the long term, assuming you have conviction in whatever it is that you're investing in, it's better to just zoom out and add on dips as opposed to trying to day trade. I hear you say that all the time, Raoul, on the podcast that you've been around, I don't know, I know very few people who are successful day traders. And I know a lot of very, very wealthy investors. The whole thing about being an investor is what? What does that mean? Well, doing a bit of research, investing in something and locking up a pool of capital for an extended period of time and seeing those returns compound.

34:10Raoul Pal:I know. And people are so freaked out about the cyclicality in crypto that they miss the bigger picture. Now, we're building that dashboard that hopefully will come out soon, which gives people the ability to buy the two standard deviation oversold and sell it when it's high. You can take some lifestyle chips off. It makes it so it's not just waiting for when I do mine. It's like you can make your own methodology. You can choose it. You can do it. That's fine. But really, if we're going from$2.5 trillion to$100 trillion, why the fuck would you ever sell anything? I mean, that's what I keep getting into my head is like, unless you have to or want to, you literally wouldn't.

34:52Raoul Pal:You would just keep finding opportunities where it gets oversold to buy more because that's where it's going. And if we think about the agent economy in its infinite time, we think about the Clarity Act getting passed. We think about the entire fucking financial system building on crypto rails. Think about ID. Think about agentic ID, robotic ID, human ID. Think of all of these things, and you're going to sell it because Raoul and Julia thinks the liquidity cycle is going to slow down for a bit. It's fucking bananas. And I kind of get pissed off with it now, even though I understand people need it.

35:30Raoul Pal:But I'm just, when I look at the opportunity and I present it and I talk about it, and we're at this moment in time, the fastest acceleration of technology in all of human history, and we're trying to time technology, it's stupid. Anyway, that's my rant over. No, that's why we're here. No, I totally agree. So that's just being reflected in our work. That's why our JPEGs will do so well. It's because we can't trade them because they're illiquid. And having illiquid JPEGs means you just hold them for 10 years. And before you know it, something you bought for$25 ,000 is worth$2.5 million. And you haven't had to do anything except look at it in your wallet and think, what a beautiful piece of art.

36:09Raoul Pal:It's not that difficult. So I was talking to a friend of mine earlier this week about the piece that we just published at GMI. And he pointed me to the last bit, which I reread this morning, which I think is just so good. And it says, the world spent the past two years teaching AI to think. The next 20 years will be spent teaching it to see, move, and build. Every step requires hardware the world has not yet manufactured. Energy, the grids have not been generated yet, and the rails and financial system has not yet deployed. Every step is investable. This is not the late stage of an old cycle. It's the early stage of a new one.

36:50And the build-out has only begun. Welcome to the exponential age.

36:54Raoul Pal:Exactly. And what we're doing is fully transitioning between the exponential age, which is the acceleration phase where technology starts compounding, into the economic singularity. This is the move we're making right now where the old rails are no longer fit for silicon-based speed. Don't forget, silicon processes a million times faster. That's six orders of magnitude faster than the human neuron. Nothing is set up for this, and we have to rebuild everything from scratch. And that is what's underway. This is the biggest phase transition shift humanity's ever faced. Um, and the whole thesis of don't fuck this up is this is you just keep hold of this trade in every guise that you've got it and ride the fucking thing.

37:46Yeah. And it's not just to the point of this, the CapEx super cycle, which we've been outlining and talking about really for over a year now, which is kind of coming into focus with semis up now 80 % year on year. But it's also that another thing I wrote about in the article is we're going to go through the largest immigration event in human history. Only it's not humans, it's agents and robots. And again, none of that infrastructure has really been built out. It's being built out now.

38:12Raoul Pal:That's right. And we're going to shift from the magic formula of GDP equals population growth plus debt growth plus productivity growth into the economic singularity version, which is AI plus robots plus humans. and productivity is how much intelligence you can produce per unit of energy. And then debt will get eroded away because GDP growth will be so strong, and inflation will be very subdued over the period of time that when you look back like the 1950s and 60s, you ended up going from 120 % of debt to GDP down to about 10. And we'll do the same all over again. and no one's again i i've i haven't spoken to anybody who's thinking like that no oh it's but it's fucking it's fucking obvious and i keep saying these things now uh it's like all of this is so fucking obvious and it's falsifiable and it is literally the whole framework is not putting a foot wrong on these big broad concepts sure wiggles here and there but it is happening it It is happening at scale, and this whole funneling of the entire focus of the world is moving towards intelligence per unit of energy, and that's the entire game.

39:31Yeah, we're leaving a world that's been dependent on capital and labor and moving into a world that's entirely dependent on compute and energy, and that's a very different world.

39:42Raoul Pal:And both of them are in Wright's law. This is what people don't understand, because look at the oil price. But Wright's law, if you look at the price of solar, wind, geothermal, everything, I mean, these things are down 99.9%. Compute is doing the same. On top of Moore's law, it's like, so you've got both sides of the equation seeing exploding productivity. And therefore, the intelligent side of the equation is accelerating. And this is the thing people don't understand. Because normally, they're kind of fixed-ish. You could build a certain amount of factories per joule of energy. But when you're building intelligence, the fucking thing is moving at Reed's law, which is Metcalfe's law squared.

40:29Raoul Pal:And we're seeing it. Every chart is doing this. Never in humanity has Reed's law ever been witnessed at scale. And it's being witnessed in almost everything I look at right now. Well, this is what we were just talking about before we came on the call. Again, was it two years ago? Was it a year ago? Was it three years ago? but one of our clients had said to us that we talk too much about exponentials within our research. And how do you define an exponential? And now literally everything that we're talking about is going exponential. I called it the exponential age. When I first wrote about this bloody thing four years ago or five years ago, and here it is.

41:05Raoul Pal:I mean, it's all happening. And the economic singularity, I said 2030 to 2032, I think 2030 is spot on. I think we'll be straight into the economic singularity where nothing makes sense anymore in terms of how the economy works. I think we're hurtling straight into that. And then the only variant factor is US rates. If they get too high because something happens, then can that cause wobbles problems? Yes. Will it cause a tightening cycle? I'm not sure. It depends what's causing it. Well, no, because the hyperscalers aren't really worried about the Fed funds rate, right? It's not the old economy, the industrial economy that's been dependent on the cost of debt.

41:49So that means that the slowdowns all of a sudden, if we're right, and not just the hyperspace, let's just say AI and CapEx become a larger part of GDP going forward, that means that the GDP drawdowns over time will become less cyclical.

42:04Raoul Pal:Because - RAOUL PAL Until we've got to a build out that makes sense for the machine age. And as you rightly pointed out, we're nowhere near that yet. We're not even close. We barely started. Anyway. Amazing. Lots of ranting from us today. But it's, look, what a time to be alive. That's all I can keep saying. And I've been saying, not now, obviously, but I do think maybe in six months' time or whatever it is, as these things play out, we should release the compute cycle article for everyone. because it's really important for people to understand what's happening. Obviously, that's at GMI now, and it doesn't even need to be this year, but at some point, people need to see.

42:50Raoul Pal:No, I think we'll try and release it earlier, maybe for everybody, just because it's really important people understand all this framing. People are still struggling with the universal code framing, but everyone will understand over time. When we started the exponential age, everyone thought I was a total moron. This universal code, I know I'm right. You know, hopefully people saw that SWE presentation where I applied this to blockchain valuations. We applied it to the HIMSS valuation. We applied it to the Japanese market situation. I've just applied it to WASH, and I've just applied it to the Trump-China delegation.

43:31Mostly, it'll be right. No, and the only reason I'm saying at some point we should release it is because I noticed my language is changing. You know what I mean? I'm talking in a way that I haven't historically spoken, and therefore it's important that people understand the concepts you and I are referring to in order to make sense of everything.

43:51Raoul Pal:You and I talked about this at the GMI Roundtable over drinks late at night. It's like the business cycle is less important than it was. Not that it's not important, but it's not the dominant factor anymore. The dominant factor is the secular accelerating trends. And that's the way it's going to be for a while, I think. But we'll see. Maybe we're wrong. We'll change our minds. We're not saying definitely, definitely, definitely. We're just saying as we see it, this is how we see it, that the business cycle becomes less dominant of the factor than both liquidity plus the secular acceleration of energy into units of intelligence.

44:35And this also explains, in relation to my last video update in MIT, there's been this big bifurcation between, remember that famous chart from BCA, which we refer to AI-driven GDP, and then everything that's more historically linked to industrial production. And this is why, and I'll say it again, why Heinrich has been wrong for three years, because he's using an old business cycle macro framework to call for a recession because certain areas of the economy are not quite recessionary, but at least subdued, which is why the ISM is doing this. Because on one hand, you've got one part of the economy that's doing this, the other one, you've got another part which is doing this.

45:17So the ISM is almost the average of that, but you can't actually see what's going on inside. but that old business like a framework will never work again.

45:25Raoul Pal:No. And the other thing, and I was doing some work on this this morning, is people keep bringing up the chilepee, the most expensive the market's ever been. And you're like, you don't understand what debasement does to the denominator because what you're allowing is price keeps going up because of debasement, the price for stock, but the earnings grow with GDP growth. Unless you happen to be in the intelligence business, and then your fucking earnings are going vertical. I mean, don't forget, the earnings coming out of Anthropic is the fastest scaling of any company in the history of the world in by far the shortest period of time.

46:09Raoul Pal:It's three years. It's gone from zero to$100 billion in revenues. This is la-la land. And it did most of it last year alone. So it went from like 10 billion to 100 billion in a year. Nothing has ever come close to this. Yeah. And to your point earlier about, I mean, there are no certainties in this, in what we're doing. But as you rightfully point out, if you're not open-minded to a changing structure of the business cycle and adapting your framework as a result of that, you're going to get left behind. Totally agree. Now, you're going to get left behind because you need to get out the door. All right, everyone.

46:53Raoul Pal:I hope you enjoyed it. We'll see you very soon. Take care. You obviously enjoyed the episode because you're here with me at the end. But listen, don't forget to go to realvision.com forward slash join and grab a free membership. It's an incredible community packed with alpha, great investment ideas, and the research that you need to help you unfuck your future. So get started now. Go to realvision.com forward slash join. Thank you.