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Raoul Pal, Real Vision cofounder and mastermind behind the Global Macro Investor newsletter, released the April 2020 edition of GMI newsletter, titled “The Unfolding“. What follows are my notes.

(R.P. wrote this newsletter on March 28, 2020.)

Plays out in 3 stages

  • The panic – liquidity phase
  • The hope – correction phase
  • The insolvency – brutal restructuring of the system

(We are in the panic phase)

The Unfolding

the everything crisis

Bubbles in debt, equities, liquidity + currency crisis + insolvency crisis

  • All-time largest equity bubble (pension crisis + buyback bubble)
  • All-time largest wave of retirees (pension crisis)
  • All-time largest corporate credit bubble (Doom Loop)
  • Student loan bubble
  • Auto loan bubble
  • Indexation bubble (passively indexed funds)
  • ETF/market structure bubble
  • Foreign borrowings bubble (Dollar Standard bubble)
  • Monetary policy bubble (The Central Bank bubble)
  • EU banking crisis

These bubbles were already in play before COVID-19

R.P. believes these will all implode over an extended period of time

  1. Death of pensions, Boomers sell every bounce to protect shrinking retirement funds
  2. Consumption crisis as Boomers stop spending
  3. Debt crisis: student loans, car loans, corporate loans. There just isn’t enough cash flow to service the debt.
  4. Fed increases balance sheet by buying debt ➡ destroys the velocity of money ➡ money in short supply (aka debt deflation)
  5. Dollar Standard crisis: Fewer dollars ➡ banks hoard USD ➡ defaults rise ➡ higher USD value ➡ brings the world to its knees ➡ world looks for replacement ➡ eventually breaks the USD itself
    • Highly possible this plays out over next 2-3 years (70% likely)
    • What the Federal Reserve does not is not stimulus. They are just replacing lost demand. Stimulus needs to go beyond the lost demand.
    • Lost demand + insolvency cris ➡ The equity rally will die
  6. Endless bailouts but the Fed can’t change the fear that becomes long-term (maybe permanent)
  7. Debt deflation: biggest in history. Plus other deflation: commodities/oil, bond yields

where are we now

We are in the final stages of the panic/liquidation stage. USD probably goes higher (maybe 20% +), but hard to know when

the economy

  • Unemployment to 20%
  • Industrial production crashes
  • US exports largest decline in history
  • Restaurants, retail, banks all crushed
  • Global trade collapses

the future

  • The fall will likely be long and drawn-out, not all-at-once.
  • R.P. not comfortable with the risk of bank balances over the FDIC limit (longer-term concern)
  • Only gold and bitcoin make sense: both are going to save us and make us rich.
  • Gold can go up 3-5x in the next 3-5 years.
  • Bitcoin could go to $1 million in the next 3-5 years, probably hits $100k in the next couple years
  • R.P.’s Allocation:
    • 25% trading investments
    • 25% cash (only USD)
    • 25% gold
    • 25% bitcoin