 The stock market is trading hope and the bond market is trading reality. Normally narratives are wrong, but the market wants to trade narratives and it trades narratives in the shorter time horizon. What's up, YouTube? My name is Giovanni. Today with us, Raul Pal, macro investor, CEO and founder at Finest Media Platform Real Vision. How are you today, Raul? I'm great, Giovanni. How's things? I'm also great. You spent most of your career in traditional finance, co-managing hedge funds for Goldman Sachs and then GLG partners. How did you get involved in crypto and Bitcoin? Some of my clients from Global Macro Investor were two hedge fund guys, ex-Goldman, who happened to hear about crypto in the very early days in around 2011, I think. And their office space came with free electricity in New York. So they thought they'd give this Bitcoin mining a go for the fun of it. And they started mining coins and the price of the coins exploded higher. And they started experimenting in this world. It's two guys called the Millwoods and Chad Cascarilla who ended up forming its bits, the exchange, and then went on to do a number of different things. And here was those guys who told me early on, listen, this is something much bigger than you think. And so after that I started digging into it and had an ongoing love affair with it. At some point I kind of fell out of love with it and then fell back in love with it. What was that made you fell off in love with it and then back again? It was 2017 when everybody was forking. So the forking for me was something I thought, I don't know how this is going to go. It either takes away from the main chain and creates less value in the main tokens or it does the opposite. And anything, all of these new ideas get abandoned and so only the strongest survive. And I didn't know which way that was going to go and I don't think anybody did. And I just said, look, I'm not comfortable with this because this feels like a replication of something that was supposed to not be replicable. The good thing is, is the main token survived and everything else fell by the wayside. Sure they may have a role in the future but that got me really nervous at the time. I'd already made 10x as well after that move so I got out very early before the final spike in 2017. We are seeing the global markets coming down a bit as countries are gradually lifting their quarantine restrictions on business. Do you believe this is the start of a v-shaped recovery or it's a kind of a dead cat bounce leading to lower lows? Well, let me ask you, you're an Italian you speak to your friends and family at home what is the probability that they're going to return back to normal? Are they all going to go into restaurants? Well, you know that restaurants are limited by social distancing and you also know that everyone's been cooped up in Italy for so long that yes they want to go out but they're very cautious of other people. So when you do that at the margin you lower the rate of growth of the economy so of course people go back to work and of course people do things but at the margin things change. So we can prove this out so not just you and I chatting about Italy but I can choose this, I can look at this in detail by looking at the tom-tom data of what traffic is doing in Chinese cities. China was about a month and a half ahead of Italy for example so it's giving us a look into the future. Well, guess what happened? People went to work and went home. In the middle of the day down 45% of the traffic because they didn't want to go anywhere. On the weekends down 85% that's in Wuhan, Shanghai, Beijing so it's telling you that it is a much broader, deeper, longer event than people think because people confuse people going back to work with the return to normal but let's say unemployment in the United States is 30 million what does back to work look like in terms of unemployment? 15? 15, 18 million unemployed? 12 million unemployed? Well, that's a huge chunk of consumption out of the economy and if that's the case the trend rate of growth is likely to be negative people don't get this. It's very simple and the bond market is screaming at you as it's starting to trade zero yields and negative yields. So why do you think the stock market is so slow in understanding the situation? Well, the question is is it trading, it's either trading on human emotion because it's a very thin illiquid market, the stock market these days so is it being driven by index funds and a bunch of other stuff? Possibly. And therefore our algorithms picking up that monetary printing should be good and therefore the stock market goes up and maybe it disconnects. That's one argument that most people have. I don't think that's going to be the case but I am fully cognizant that it's possible. I think that the stock market is trading hope and the bond market is trading reality and the bond market will show us where the stock market will go. It usually always works that way. It will be extremely rare for the stock market and the bond market to diverge for so long. So that's what I'm waiting for. I think the bond market will give us our signal. I think it started yesterday as all the yield started breaking down towards zero. I think like in Europe in 2012 DCB weren't at negative rates but the bond market was trading negative. It traded negative on and off for the next 18 months. It would go negative, it would go positive, negative, positive and the ECB rates were zero and eventually the ECB cut to negative and then continues to do so. So it's nothing to do with the Fed. It's what the bond market is picking up about the state of the economy and the state of the recovery. You have a very interesting way to look at investment strategies which is based on the concept of cycles, a sequence of up and downs in the world economies. Can you tell us a bit more about this strategy and how it can be applied to cryptocurrency? Well, firstly I don't know if it can be applied to cryptocurrency but I will tell you how cryptocurrency fits into my framework. And again, I don't use cycles in the kind of voodoo where the moon and Saturn came up on this thing and therefore that. What it basically is, is you take a chart of GDP, you look at that, that's how the economy moves and it goes up and down. We have booms and busts. We have processions and we have good times. So a small child would look at that chart and say, oh yeah, it goes up and down. What's fascinating is economists predict a linear path. They never predict an up and down, right? The business cycle is so obvious and the evidence of the business cycle goes back in all recorded economic data that why not just follow the business cycle? So when you look at the business cycle, what it basically is all the factors that drive the economy up and down, whether it's interest rates, the credit cycle and a bunch of other things. So you look at that and you can also forecast when the cycle peaks, when the cycle troughs, what it's likely to do. Not with 100% certainty, there's no crystal ball here but it gives you a structured framework of what things could be doing. Then I have a secular cycle which is the big things like demographics. The baby boomers were the big drivers of the stock market and consumption and certain things. That would be a secular cycle or let's say the Middle Eastern countries in India with young populations and low debts. They're probably a different secular cycle. It's kind of the opposite to the West. And one of those big secular cycles is debt. So you have this debt cycle, you have this demographic cycle and then you have the business cycle going lower and then you have something like COVID that comes along and is the accelerant and what happens is you start thinking of, okay, what are the weak parts of this system based on the debt demographics and other issues that we have and one of them would be the financial system. We're not talking about the financial system like 2008. Is this bank going to go bust or that bank? It's the very structure of money itself and how nations around the world deal with it. The problem is we live in a dollar standard world where the dollar is at least 70% of world trade but there aren't enough dollars in the system for all of the borrowers of dollars or the needs for dollars. So it becomes a super constrained system and additionally on top of that there's a huge amount of printing of all currencies, not just dollars but of euros and yen and Aussie dollars and British pounds. So all of that comes together and that would lead you to say, how do you profit or protect yourself in that environment? So secular cycle, business cycle, potential outcomes and that would lead you to a combination, let's say, of gold and Bitcoin. When you mentioned COVID, when you mentioned the problem that we have in the current financial system you mean that you identified a closure of a cycle right now in this period of time? Correct. So we are clearly in the recession. The recession is the bottom of the down cycle. It normally goes on for about 18 months or two years. Longer ones go on for three years. We don't know what this is going to look like. The market is betting that this down cycle will be shorter, six months and I'm thinking it might be three years. So there's a difference of opinion within it. But what we say is this is the largest economic downturn nor recorded history. The Bank of England announced yesterday that this was the largest downturn in the British economy in 300 years. That's the magnitude of what we're dealing with. So what is the probability in something so big that it blows up other things? Things like the monetary system, things like the whole central bank balance sheet system, things like our system of governments. All of these things in an environment like this have a higher probability of change because this is such a destructive event. And out of that destructive event comes new opportunities. So I think the probabilities are high. There was no certainty in this world. But the probability is high that, for example, we have to move to a new financial system and that will probably involve digital currencies in multiple formats and whole digital infrastructure that's being built not just in the crypto land but across everything. So when do you think this scenario is going to actually materialize? What kind of timeframe are we looking at? No, well, it's not clear how long it will take. But if this is a recession or depression, which I think it may well end up morphing into, and it drags on three years, I think three years would be the time horizon where they're going to have to do something because I fear that the dollar is going to rise dramatically over this period of time. And basically that's a wrecking ball to the global economy, the US economy, creating deflation as we go and a whole bunch of other problems. You recently defined the current Bitcoin technicals as a Bitcoin porn and a perfect setup. Can you explain why are you so bullish? So I use technical analysis a lot to give me structure and understanding what a market looks like, what all the participants' behavior has been up until this point, exactly to be in the future. And I look at the chart of Bitcoin and it's a beautiful triangle pattern. That kind of pattern tends to be powerful. It usually means that volatility is contracting and that the asset is changing hands from one group to the other, from weak hands to strong hands. And then normally when it breaks out of that pattern, it's a fear of missing out, BOMO, and you tend to see large explosive moves. When you look at the chart on a log scale, it looks also very extraordinary because how you measure, what's useful about these kind of triangle patterns, like all the wedges, is that usually the size of the pole of the flag is repeated again. Now if you did that, using the log chart, it would take you to a million dollars. In this halving, is that possible? Who the hell knows? I think it is. But it wouldn't match the stock-to-flow model which says, you know, it might spike to 250 or something like that. But that setup looks extraordinary. Then the kind of regression setup of the regression channel, that looks extraordinary. The stock-to-flow setup looks extraordinary. The new flow is perfect. It's kind of like it couldn't be a better opportunity. It doesn't mean I'm right, but it means the probability is high. You mentioned you are accumulating as much Bitcoin as you can, since you believe it can go up 50 to 100 times in the next five years. But what are the macroeconomical factors that should be in place for that to happen? I think it's to do with how long this recession, depression goes on for and the strains it puts on the global financial system. We are basically two months into this and we have the largest monetary stimulus in all recorded history by pretty much every nation on Earth. Every country in Europe has expanded their government deficits by 20 to 25% all in one month. We have the Federal Reserve, the ECB, BOJ, Australia, New Zealand, the UK, you name it, all expanding their balance sheets. And at the same time, we have 12 trillion dollars that are borrowed in US dollar terms where they can't get access to funding necessarily, so the weakest people. We're seeing an emerging market crisis with Brazil, Turkey, Argentina, Venezuela, where anybody who's a weaker creditor can't get access to credit. So if I'm right and this plays out longer, we have a large solvency event to deal with which is global revenues are down but global debts are still up. I think we go to a debt deflation. We have a deflationary environment. The price of commodities would suggest that. And this is where people get confused between deflation and inflation. They're like, how can you be a Bitcoin bull if you've got deflation? Paul Tudor Jones mentioned it in very specific terms. Global monetary inflation. We're not talking about global price inflation. They're two different things. So we are inflating or devaluing money. We're not necessarily creating higher prices because maybe the price of goods is falling faster than the price of money. So people don't understand this concept. The inflation you're talking about is about not the increase of prices, just the decrease of the value of money. Correct? And you can see it versus gold because that is the money that has no debt against it. So you see that relative valuation. Now prices are falling faster than the value of money because the oil prices collapsed and the copper prices collapsed and everything else has collapsed. Food commodities have collapsed. So you're not seeing inflation in prices. You're seeing devaluation for the price of money because that's why it's called the global monetary inflation. In that environment, with all of the factors I've talked about, the probability of this digital world being set up, considering that Mark Carney from the Bank of England, Benoit Couret from the ECB, the BOJ, the PBOC, everybody has talked about the need to move off the dollar standard and the need to go to digital currencies. Then we had the Facebook Libra moment, which was like the holy shit moment for everybody, where suddenly you realise that anybody can create currency basket, which can be used for world trade. There's not peg to the dollar at 70% of the whole thing. And you see that there is a very fast movement. We're also, as all of us are seeing, the changes in the decentralized finance world, the payments world, the remittances world, the architecture of the whole financial system from granular detail to macro. It's all happening at the same time. So I would say the probability of in the next five years, considering we're kind of getting to the horizon zone, where this all comes together at one point, I give that a pretty high chance. And so I treat Bitcoin as the option on that horizon. Now, Bitcoin won't be the currency. I'm not saying that. I know many people say it could be and should be. Sure, but I don't think it will be yet, if at all. But its point, its relevance will be extreme, because it'll be a reserve currency for all of us. So basically you're saying that Bitcoin itself might not become the currency, but it will lead the way, it will open a kind of path that eventually will see similar currency, similar digital currency taking a foothold. I don't think you'll ever replicate Bitcoin. So Bitcoin becomes the hardest money. You can't replicate it. Other people will try and do other things like it. But think of it as your own sovereign currency that you can always go to if your government's acting bad. It's kind of how gold works. But it's a digital currency that has a lot of digital abilities, smart contracts, rapid payments, portability, all of the things that were in the Bitcoin stand and as a book, those things make it actually highly adoptable. So forget the argument that people run down is like, we need to adopt Bitcoin as the world. No, no, you just need to be able to have access to it and be able to on-ramp and off-ramp the tax world or the sovereign world that this is your non-sovereign world. It's the same as gold, but with a ton more attributes. It's extremely valuable for people. So I'm curious because some people say that if Bitcoin acquires too much traction, then governments around the world might even crack down on it because they would see it as a threat to their financial monopoly, their monopoly on the financial system. Can't you see a scenario like this playing out? I think people need to understand the size of the financial system. Bitcoin is currently worth around $200 billion. It's noise. It's basically a mid-company in the S&P 500. It's nothing. It's pittance. Until you get to the size of Google, where the governments are starting to think maybe we should do something about their use of data, it's a trillion. So we need to have 5x from here just to even be relevant. But we're talking about an asset class and not a company. So what's the size of the gold as an asset class? It's 10 trillion. And I don't see governments panicking about gold. Sure, they don't really like gold's presence because it has a ability to measure what Bitcoin is doing, but they don't really strictly stop it or do anything like that. So what size do you have to do it? Well, maybe it's a 20 trillion or 30 trillion. So the point being is we're a long way from that. People are very quick to go from A to W in one step. Oh my God, they're going to ban it tomorrow. We've got years before that happens and we don't know what the world looks like by then. But don't forget the thing about Bitcoin is it's pretty transparent. They do know where you are. Sure, there's ways of hiding. So you're not doing it to evade the system. You're doing it to use a different money because it has more value to you. And I don't think that's a huge problem. These kind of problems are too far ahead to be considered relevant today even within your macro vision of economy, right? Correct. Because what you will do is you will not buy Bitcoin. I see this argument come up a lot. So they will not buy Bitcoin and they'll miss a rally to a trillion dollars. That makes sense. Because they've created something that's 10 years in the future as their problem today. And that's wrong. There's a misunderstanding, right? So macro is living in the future. So if you say to me, okay, my future state is that governments around the world are forced to ban Bitcoin. What you're actually saying is in 10 years time Bitcoin is so valuable that they have to ban it. So what does that tell me as an investor by Bitcoin? People are doing the opposite. They're thinking, oh, better not buy it. So living in the future state where that is possible means that Bitcoin has to be a million dollars a coin. That's macro investing. Investors base their decisions on narratives and charts. Often charts reflect the narrative but sometimes they contradict it. So what should the investor do when the chart and the narrative are contradicting each other? Normally narratives are wrong. Narratives tend to be the thing that everybody else talks about. So maybe the harming is the wrong narrative in this situation. Inflation I think is the wrong narrative for the reasons we talked about. But the market wants to trade narratives and it trades narratives in the shorter time horizon. The chart usually tells you what the underlying narrative may be. And it's often the case that I will use charts to give me the guidance of what I think the narrative is. So the narrative right now, sorry, not what the narrative was, what the reality is. So right now there is a narrative, the Fed are printing money, the debt for the US dollars going to collapse. That's the narrative. And I need to buy gold and yeah, this is good for Bitcoin. Inflation is coming. The dollar is going to collapse, right? That is the narrative. V-shaped recovery, all part of the same narrative. But I look at the charts of the dollar, the ADXY, the Asian currency or the R&B or the Euro, and they all look like they're going to collapse. I look at the charts of the long-term commodities markets. And again, I lose a lot of long-term charts. The long-term commodity markets have broken some of the biggest top patterns in history. I look at the interest rates and they look like they're going negative. So I've got a consistent story that all the charts are telling me, but the market is telling me something else. The narrative is, that means I have an opportunity and then it comes down to timing. Doesn't mean I'm definitely going to be right that all of these charts, as I read them, are going to be right, but generally, that's where I find I get the most edge for myself. That's probably where I've done best in my career is these situations. So we're in one of those situations now. So then you're looking for, okay, what is the tipping point? Well, the good thing is I can filter out equities because I can be long Bitcoin, long gold, long bonds and they're all working. And I can be long emerging market, long dollars and that's working. So I can ignore the equity market for now and just wait for the right timing should I feel like doing it. So that's kind of how you look at it because the equity market is the one that's really not playing along right now. But as we talked about earlier in the interview, there were different reasons why it may not. I think it will be wrong. I think people's assumption that it's fed liquidity is probably wrong. Thanks for being with us today, Rahul. That was very insightful. Thank you very much for having me. Really enjoyed it. And you guys, as always, don't forget to like and subscribe. See you next time.