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I just listened podcast with Raoul Pal, while I think he is probably overly optimistic, is refreshing to see this kind of perspectives that try to focus more on the long-term path, rather than all the noise that the short-term can bring.
- He believes we are transitioning from “crypto winter” to “crypto summer,” indicating due to an improvement in liquidity conditions.This transition is marked by disinflationary forces and slow growth, prompting central banks and governments to inject liquidity, with politicians also seeking to stimulate the economy close to elections. Elections create uncertainty, but significant economic moves will likely occur after the elections, independent of the results. (3:00)
- Liquidity improvement has led to a Wall Street recovery, although mainstream is still waiting for its recovery. This final recovery will increase earnings for everyone and hence it’s flow into the markets, further increasing liquidity from this perspective. (3:40)
- The Federal Reserve focuses on unemployment and inflation, which are the most lagging indicators, resulting in delayed policy responses usually. He suggests that leading indicators are mainly found in financial conditions. (6:30)
- He believes central banks are not ignorant, and they may cut rates late on purpose for other reasons, possibly related to government debt refinancing (a weaker economy will lead to greater rate cuts). (8:00)
- He thinks central banks work together globally, often aiming for a weaker dollar, which can benefit growth and prevent a dollar shortage in the eurodollar system. (10:00)
- Government debt is resulting in financial repression through regulatory changes that encourage bond purchases, functioning as a form of yield curve control or quantitative easing (QE). (14:30)
- The current liquidity cycle affects all asset classes in a similar manner. He recommends then allocating to the best-performing assets, with crypto being the leading one (he claims his portfolio is all crypto). (16:00)
- GDP growth relies on population growth, productivity growth, and debt growth—all of which have been lacking recently. He sees AI and robotics as potential drivers of change since they are basically a way to get infinite population growth, but this requires productivity increases in power costs, this is currently being supported by current investments and regulations. (21:00)
- Crypto: he thinks this is the greatest opportunity going forward, thinks of blockchain as a global utility, but unlike others, it has a network effect. He thinks the space could get to 100T market cap by ~2032, if the current rate of growth continues. (28:30)
- He thinks is crazy to not own any technology investment currently (he is radical thinks that only tech and crypto make sense) since the world is going through the fastest tech change in all human history, and is hence becoming more and more digital each time. He thinks everyone should ignore all the noise about this being a bubble, and invest, and if it crashes at some point, just add more tech lower. (41:00)
Just reading the summary my first take on his credibility is not positive.
- 100T crypto marketcap by 2032 sounds completely off to me.
- I don’t think the Fed is politically influenced
- There was no large liquidity improvement?
Apart from the obvious things like great tech revolution, inflation/employment lagging as indicator, components of gdp etc. is there any new element in there that you think is interesting that we should consider which you would highlight and which we did not talk about before?
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Yes, I don’t think the FED is political, I just think they have bad models and follow the wrong indicators.
But I think a level of coordination between all important central banks do happen, most likely.
There was a significant liquidity improvement last year that I did mention about before, as the RRP was drained bank reserves increased by ~500B (~16.5% increase) , obviously still not the huge level increases we saw in 2020/2021.
But this year this has stopped for the most part (bank reserves are again decreasing, ~300B less since March 2024 local peak), and is the main reason the FED has to slow the pace of QT this year, since they got worried bank reserves would get to very low levels again very fast. (reserves were ~3T when banks liquidity problem appeared in 2023)
But to be fair, I think his thesis is that most of the liquidity is coming as a reaction to the economy slowing.
Other than this, I was just reminded about the Eurodollar system, I always see it mentioned when talking about global dollar liquidity, and I admit I don’t know much about it, but I have saved a task under liquidity to get to it at some point in the future.
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