Why Markets Could Be Ready To Move | With Julien Bittel

0:00If we didn't have this capex boom and AI, we'd have a fucking messy economy. The yield curve basically needs to bolsteep in or everything's going to suffer.

0:09Raoul Pal:I mean, people don't understand that macro is a dynamic game. You have to take into account all the variables that happen. It's a really hard game, macro, but the trend is still intact. It got a bit overextended. So actually, the more they correct in these secular uptrends, the bigger the opportunity is, again, to either reload or just re-add. So it gets kind of interesting. Hi, I'm Raoul Pal, and welcome to my show, The Journeyman, where we travel to that nexus of understanding between macro, crypto, and the exponential age of technology. Okay, that's not quite true. I'm actually Palvatar, Raoul's AI avatar, because Raoul's taking a much-needed break.

0:46Raoul Pal:That means you're all stuck with me. But I've got a great show for everyone today. That's because I've unlocked the latest episode of Shooting the Shit between myself and Julian Bittle. It has everything you want, including my current macro thinking. Please enjoy. 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.

1:18Well, welcome everybody to Shooting the Ship with Julian and I.

1:21Raoul Pal:I'm still in Spain. Julian's in London. Julian, what the fuck's going on? babe like it's been so i got one of those really strange uh summer colds which like no one can explain like why do you have a cold it's like you know scorching hot in here and what's made it you keep producing children they just jam factories well what's made it worse is like because we have the newborn at home marina's basically like go find one of the spare bedrooms and just live in there so i've kind of felt like the count of monte cristo where at like 8 p.m i get like a little tray of food i'm like wait come back and then so i managed to escape because here I am.

1:56But this, I mean, the treatment, Raul, the treatment has been terrible. But other than that, I'm good. You, you're obviously living it up, Ibiza.

2:05Raoul Pal:Yeah. So I'm slightly tired after a long weekend at Ibiza. But, you know, coming back to markets and looking at stuff, it's just like, it's boring because it just can't make real traction. Everything, you know, is sort of sideways range bound it feels like crypto is accumulation zone it just keeps stacking up technical signals but doesn't move much and um and technology is still sort of rotating and chopping around yeah yeah i mean i think that you know for me man do you want me to go through my charts first i think i'll go through some as well um i think if i just start sharing the first thing this is kind of what I've been looking at this week.

2:52So I put these together for the pack. So I just want to kind of start with gold because you and I have kind of been talking a lot about H2 and the shape of the yield curve being important. And if I look at gold here, it looks like a bullish wedge, doesn't it? And we also know why gold has been weak, right? It's because the yield curve basically bear flattened as rate cuts got priced out of the futures curve driven by the escalations of the Middle East, despite break-even rates, which we had been saying would come lower, collapsing.

3:31Raoul Pal:Yeah, because it's something between the yield curve and financial conditions. It's kind of a real-time indicator of what the world will look like going forwards. Once it steepens, but then this also, to your point, this explains why gold is week, but it also explains why the dollar, because this is the dollar versus the two tens curve, this also explains why the dollar has been rising, right? As the geopolitical risk premium gets priced in, it's basically all the same trade, but different instruments. Okay. And you can see that here, right? So this is the yellow line is the yield curve. And then the white line is rate hikes now priced into the futures curve through December.

4:10So basically what you can see is that in February, we had over two cuts priced in. And then all of a sudden with the Middle East, we started to price in basically one and a half, two cuts into Europe, which I still, God, I struggle to see that given that it's like -

4:25Raoul Pal:I know, but there's an 80 % probability. And I'm like, the Fed know that what's going on is, it should not be super inflationary. Yes, there's some other inflationary aspects because of what's happening with chips and other stuff. I get it. Same. But overall, liquidity is, inflation is not yet rising. The second derivative is because the business cycle is picking up. Right. But it will be weird to try and hike because the oil price is high. Super weird. And so that's why I still think that the yield curve, you know. But then do the Fed surprise the markets on purpose to kind of say, fuck you, this is not how the world works anymore?

5:06Well, but if so, you know, you said 80. If we just look at rate cut, sorry, rate hikes odds in September, it's 100 % now, given what over the last week what's happened. And as I say, into December, we've got two cuts or two hikes priced in, essentially. But the point here is the same thing, right? Even if they do, it's already priced in. That's right. But then what does it mean? And they could do a dovish hike. That's exactly right. And even that would be a boost for markets. Yeah. That's what, you know, people, I think people struggle with. And then why I think this is all interesting now is if you look at the yield curve, we've got a weekly nine.

5:44We've got a daily nine, nine, 13 today, six, which, by the way, if you squint your eyes, maybe this is some kind of bottoming pattern. Yeah. Because, you know, it looks the same as gold. And then gold has the, you know, the weekly nine that you and I had been talking about. And the reason, as we know, that the Fed needs the yield curve to bull steepen is because banks borrow short and lend long, which means a flattening yield curve does nothing for them, which is why the Fed is still pulling US liquidity higher. And they don't want that. They want the banks to reengage, but they're not going to do that until the yield curve bulls.

6:22Yeah.

6:23Raoul Pal:I mean, Andreas posted about this yesterday on the platform the day before. And something we wrote about with regards to Japan is like this steep yield curve is the game now. Yeah. And everyone has to understand that. And it needs to be a bull steepening, not a bear steepening, which we haven't fully had because liquidity is being pushed to the banks. And to do that, they need a yield curve. And, yeah, the Fed's struggling to try and get there, but it will get there eventually. And that will increase the lending because you can't finance this CapEx without lending. That's right. And then so it's even though the ESLR stocks already in place, which we had said would pass in Q4 last year.

7:02Raoul Pal:And you remember at the time, yeah, wasn't a lot of people thinking that was going to happen. It has. But the problem is, is they just haven't been using it because of what's happened in the Middle East, which is bear flat in the yield curve. It's tough. Right. But that's basically what's happening. So I still think people don't understand that macro is a dynamic game. They kind of think that you see the picture in the future and that's what's going to happen. It is not. It is. You have to take into account all the variables that happen. And it's a really hard game macro. It is not a simple forecast it and it just gets there.

7:30Raoul Pal:It's like forecast it and keep adjusting your forecast every fucking day when different things happen into the future. It's not easy. Yeah. And that's why I think H2 really just comes down to one thing happening. The yield curve basically needs to bull steep in or, you know, everything's going to suffer. because the longer that this flattens everything, the dollar goes higher, rates go higher. Go back to the daily chart of the yield curve. This is really important.

8:03Raoul Pal:This looks like a contra trend, a corrective phase. So if you think about it, it looks like it's a wave five up, a wave two correction, and then you should have the full steepening of the yield curve to come. That's what's in my head. And once you start breaking the kind of 45 basis points level, that's kind of an inverse head and shoulders of the yield curve. And then you get to that nice steepening of the yield curve that traditionally happens at this point in bull markets, where the yield curve goes to 100 basis points or more positive, and banks start accelerating their lending. Yeah, and bank, it's all kind of one thing.

8:39Raoul Pal:Because if not, who are you penalizing by raising rates? You're penalizing households, but not banks, because banks aren't being irresponsible with their lending. Later in the cycle, when the yield curve is too steep, you might want to penalize the banks and say, slow down. But at this point, what are you trying to do? Yeah. No, I totally agree. But that's why it's just so... I mean, once it steepens, it unlocks gold rallies, financial conditions ease, the dollar's lower, small caps outperform. It's like there's going to be a major rotation once this starts to happen. And the reason I say once is because I still believe if you think about energy CPI and oil.

9:15This is monthly. So naturally, the teal line has ticked a little bit higher with what's gone on the past couple of weeks. But I still don't think it's important now. Because if we know about the May CPI, 58 % of the May CPI was driven by energy, which was because oil was going higher. Now it's come lower. And the June CPI, as we know, was a negative surprise, which we were expecting. And I think that this still plays out for a while. And then to your point about inflation breadth, if you look at core X shelter, nothing there. And even goods, right, with the inflation dominoes, right? Commodity prices, goods.

9:51So even the mid-tier chain of the inflation dominoes hasn't really done anything. And then look at this. The Atlanta Fed core sticky CPI just moved to a new cycle low. And when we're talking about sticky stuff, just to be clear, this is things that don't really change. They're inelastic, right? It's like apartment rent or rents just in general, it's insurance premiums, it's tuition costs, medical services, and even silly things like haircuts, right? They don't move much. You're like, well, inflation has come down from 6 % to 2%. Surely my haircut's cheaper. It's not. In London, they're crazy expensive.

10:23And then you have the inelastic stuff, which is gasoline, plane tickets, hotel bookings, all this stuff. So it's very similar to, I mean, this sets the trend, right, Raul? This is core. So it's very similar to what I say when Fed liquidity - And the Fed are going to change what they're looking at at some point as well. That's right. But this is like, this is, I mean, if you just look, I've highlighted this box just for everyone. I mean, this is core CPI. Core CPI is almost 80 % of the total headline number. So very similar to when I say US liquidity, Fed QE and ultimately bank QE will drive the trend.

10:55And then TGA creates volatility around the trend. It's no different than this sets the trend. And then things like oil creates volatility around the trend. But this is just telling you that inflation is not an issue. And then when you look at the data, like, look at durable goods orders for today. It just came out. Look at this chart. Yeah. If anything, this feels a lot more like Goldilocks, doesn't it? Like a regime where inflation is moderating, even a second derivative is somewhat moderating, and growth is pretty resilient, you know? Yeah. Yeah. So this looks good. The next thing we were talking about last time, I just pulled up.

11:25Every time we do one of these, I go through the old deck and kind of look at what we were talking about. And this is what we, this is the, just before we jumped on the call, we were talking about ETH BTC. We had this 9.13.9, right? now here we are today. And I think it's even clearer when you look at it on the TradingView chart. You and I were talking about this last time we were on a call. I was like, I'm using TradingView now more than I am Bloomberg.

11:47Raoul Pal:I know, I am. That's crazy. I know. The tools available to people nowadays are just incredible. Incredible, yeah. And then here's kind of a more zoomed in version that had been kind of forming a small little pennant. We're breaking higher from that. And this is the really big picture chart, isn't it? Yeah. And I still love this chart. Same. And then as I was thinking about this chart, I had kind of had another chart in the back of my mind, which is a very classic old school GMI chart from kind of back in the day. Look at EM. Yeah. I mean, what does this mean? Well, in what respect? I mean, this means emerging market.

12:33I mean, emerging market.

12:33Raoul Pal:yeah but don't forget this is basically i think this is taiwan and korea i think in the em i'm not sure um i don't know the total weighting but you know i mean that could be right but nevertheless i mean this is just such a bullish looking chart yes it is look at the regional the regional weightings yeah you're right it's well it's regionals where are we yeah so it's taiwan I'm, you're exactly right. It's Taiwan, South Korea at about 30, 50 % of the total. And then China as well. So this is, you're right. But a very bullish looking chart. And then I was looking at this. This is Seoul BTC. So I think, and I was just scanning some of the on-chain stuff.

13:21If you just look at stablecoin float, if you look at DEX volumes, if you look at fees, if you look at different measures of velocity, there's a lot going on in Solana right now from what I can tell. Yes, agree. So I'm just watching this because maybe it's a head and shoulders. And the last chart for you, well, from me to you, and I just wanted to ask you about, is SpaceX.

13:48Raoul Pal:And the reason - I've been thinking about this. I was thinking about writing it up for GMI. So it's got to be bloody close to a buy, right? Yeah. And I was looking at the, you know, and we're even lower. I mean, this is pre-market. So if you look at, I mean, I think we're at 110 now. So we've come lower on the day. The DMARC counts aren't really there, but this is like very typical IP. This is almost like a normal thing now. Every time something IPOs, it goes down 50 % to 80%. But at what point are we going to want to add this is my question. Yeah. On my trading view, I've got a daily 10, 7. I don't know where the bottom is, but it's got to be on the radar screen.

14:29because, I mean, this is one of the world's greatest companies,

14:34Raoul Pal:if not the greatest company ever assembled. Now, at what value, what price, I don't know yet, but I know damn well this is where the world's going. Same, and that's why I wanted, yeah, it's something for us to think about for GMI and Probe because at some point I've just been waiting for this to come lower. The question is just has it come low enough? And we got, let me share, because we, based on this, this coming out. We got out of Rocket Lab. I said, look, it could have this massive throw-off top up here, but it was like two standard deviations overbought. And that was Rocket Lab, and we got out somewhere here.

15:14Yeah, we closed it at, we've talked about this, at like 690%, and that was the second time we got into it. Yeah, I know. But then it goes back to the same question. At what point do we buy it back like we've done before? Or you said last time it was a little bit expensive, which I totally buy.

15:31Raoul Pal:Yeah, I mean, it's still expensive, but the story's not going away. It just depends on what price you want to get in at. The other one, I'm trying to think. HIMSS is a stock we got into really early. I think it's going to create its final pattern. There's some news announcements coming out about peptides and other stuff. It looks like this should be near the end of the correction. But overall, the NASDAQ still correcting. It's a nine today. Does that stop it? Maybe. Maybe. We've had the big rotation that I've been expecting and wrote about in pro. The semis still correcting. And I think that's right because the semis lead and then everything else has to follow.

16:22Raoul Pal:And, you know, did the semis continue? So I think over time, it's fine how the Chinese internet stocks. It feels like it's about to happen, but it's still kind of nothing really happening yet. And that's the whole rotation idea. And I think what I've got with this, if I stop sharing this one and go to this one. the issue is you know US liquidity is rising it's not topped but it's been choppy so broad liquidity choppy the narrow liquidity which is just the treasuries held plus the Fed net liquidity yeah it's rising but year on year still isn't because of the effects of we were talking about this before the year-on-year base effects.

17:18And the NASDAQ mainly followed broad liquidity.

17:22Raoul Pal:It's actually better with total global liquidity. And Bitcoin's kind of been following the narrow. So we need these to start accelerating a bit further to actually start picking it up. But as we said, the yield curve is a bit steep, but it doesn't really do it. If I go to the global liquidity, again it's been sort of sideways for a while as have many markets year on year has been chopping around and the year on year uh the total global liquidity very close fit with the nasdaq feels that we should have stopped the correction and continue to the next leg higher before we then pause again kind of makes sense to me agree um let's have a look at my um trading b charts if if there's anything interesting in the tech stuff, in the crypto stuff.

18:18Raoul Pal:Crypto stuff, as you said, the most interesting thing has been ETH, Bitcoin. Everything else has just been fucking around. 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. The link is in the description. Download it now. It's kind of we had the leg up and then we've had a chopped leg. Sui's been weaker, but still just putting in. And that's the daily. We've already got 13. We're probably going to get another nine here.

19:00Raoul Pal:But when we get to the weekly counts. We already had the 13 and that generally works really well. And more importantly. we had the monthly nine as well which is super rare across anything so everything's kind of in place but it just takes a bit of time so and there's the bitcoin monthly with a nine there's the eth monthly with a nine right soul monthly with an i mean yeah you don't get these patterns often that's right that's right so we just kind of have to pause zcash let's have a look at the shorter term version of this, my guess is we're trying to, yeah, trying to get to a daily nine.

19:50Raoul Pal:So again, I mean, people hate us saying it, hate us saying it, but patience. There's nothing going on. It's just building strength, doing its thing. You need liquidity to happen. You know, I know, I mean, that's the other thing. It's just everybody freaks out about Mike Howell And so if we go back to it, Mike Howell has been bearish on the Nasdaq and bearish on Bitcoin because of his liquidity measures. Right. We've been bullish on both because of our liquidity measures. And what's happened? Well, crypto hasn't done well and Nasdaq's done really well. So we've both been right on one leg of the trade, which tells you there's some informational value in that, which is liquidity is not moving one way or the other.

20:39Because if not, it would have nullified or confirmed one of those two views.