Raoul Pal on 2021 Insolvency, USD, Bitcoin, Emerging Markets, and the Death of Macro Investing

Raoul Pal on 2021 Insolvency, USD, Bitcoin, Emerging Markets, and the Death of Macro Investing

Raoul Pal
Founder/CEO - The Global Macro Investor
Co-Founder and CEO - Real Vision
Former Head of European Hedge Fund Sales at Goldman Sachs
Former Portfolio Manager, GLG Global Macro Fund

Filmed on January 8th for the Vancouver Resource Investment Conference #VRIC21
Host: Jay Martin, CEO of Cambridge House

0:00 Intro
1:25 Update on the Unfolding Thesis
5:14 Preparing for Possible Liquidation Event
8:45 98% of Assets In Crypto
10:02 ETH vs BTC
13:40 Emerging Markets Trade Set-Up
15:33 Asset Allocation and Time Horizons
18:48 The Death of Macro
23:00 Emerging Markets and Gold
26:33 Global Debt Jubilee

Interview Notes:

3 Phase Unfolding Thesis

The unfolding thesis changed when the FED stepped in to backstop the credit markets. Anyone who could borrow money did.

The insolvency is not happening at the level of General Electric - it’s happening at Main St level - which is the biggest part of the economy.

The market is trading vaccine hopes but revenue looks awful.

We have another 6 months between now and the average person being vaccinated which keeps revenues down.

The only way to stop an insolvency event is fiscal stimulus.

The market is taking an all-in bet on reflation right now on limited information. The probability of something to upset this is rising.

Gold is getting sold off because of the USD.

Raoul has no equity positions personally but has gold, bonds, call options, and a few equity puts in the GMI portfolio.

He does not necessarily advise moving to cash, but be on your toes. Another play would be to buy TLT calls - if nothing happens, you lose your premium.

Correlations tend to fall apart in times like this - just be on your toes. Consider buying March TLT calls in the US.

Raoul is adding to ETH because he thinks it will outperform this cycle.

Hoping to add to Ethereum and will continue to add to that because the chart looks like it’s basing and following the 2017 BTC cycle in price, number of wallets, and market cap following Metcalfe’s Law of adoption.

Raoul is not concerned about a big correction in ETH because he’s not leveraged and can afford to lose money.

Emerging Markets

Dollar could trade in a sideways range - bad for FX traders and great for Emerging Markets

Most Emerging Markets cycles tend to give 400% upside.

Largest outperformance of the S&P against emerging markets - generally a 7-10 year cycle.

Asset Allocation Strategy - 3 Buckets
- Liquidity preference - so you can get in and out before the trade is confirmed (EEM)
- Time preference - "I feel like I’m on the trend and can hold for longer holding periods"
- Risk preference - 1-2 years in when investors start move further out on the risk curve (the trend is set and I can hold more risk)

Which markets give Alpha beyond EEM?
- Raoul likes India from an infrastructure and technology level
- Monsoon Countries that surround India should follow (East Coast of Africa, Singapore Indonesia,
Malaysia, Iran, Saudi Arabia, Dubai, Morocco, Egypt)

Death of Macro

Everyone in Macro has made money from one trend - rates - lower volatility, and increased leverage.

The other generator of Alpha is FX - WTO agreements have been muting these.

If the dollar stays within the range against other currencies (New Bretton Woods could do this) this is the death of FX.

Japanification means the bond market stays flat for 20 years. The FED back-stops the credit market so you can’t make money off debt.

Equities are not macro instruments.

In this scenario, the pension money has to move to emerging markets.

Time Horizons & Future Expected Probabilities

Crypto is Raoul’s bet for the next 12 months because it will destroy every other asset and sucks everyone in on a reflexive loop.

BTC chart vs every other asset - it’s eating them all.

There’s a 6 month risk window for Emerging Markets before Raoul is jumping in on the trade. If the Emerging Market get sold off - buy them.

Gold should get taken along the ride with EM.

Debt Jubilee

Very speculative concept and there is no way of knowing the probability of a debt jubilee happening.

IMF, ECF FEd etc all have said digital currency

We could move towards a basket of trading currencies.

Bretton Woods moment - in 6 months we’ll be talking about some stimulus that is an order of magnitude bigger. The IMF wants to coordinate it among countries so no one countries’s currency gets destroyed which devalues the price of fiat money.

A possible term that could be set is “if you want to be in this basket you can increase currency at 2% per year.”

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