🔴 Predicting The Global Economy (w/ Raoul Pal) | Macro Insiders | Real Vision™

I've been in the global macro business for 26 years now and over my time of analyzing markets and trading markets I've realized that the study of economics really lets people down and we use global macro meaning global macroeconomics and we're supposed to be basing our strategies around that but once you start looking at economics you realize there's a big flaw in how economics and presented to us what's taught at universities and how we understand global economies in in my world of trading markets and looking for opportunities and risks I'm not interested searching the theoretical economics because theoretically economics don't work you tend to see words like Keter as paribus which means all things remaining equal and that's a tense to give away something meaning that this doesn't work in the real world and that's the problem we've got to in this world where we've had extreme uses of Keynesianism economic policy and monetarism and the two lots have been blended now or betraying anything in which to get ourselves out of a bigger picture issue I spend a lot of time I guess since really the late 90s trying to understand other ways of looking at economics that may be more applicable and maybe more real life and I think real life economics is what's important I think the studies of behavioral economics are very crucial in this and so for me the thing that I stumble across but I seem to be one of a few real proponents of these days and it's weird is the business cycle or cycles in general global economies and over time and you can see that when you look at any chart of GDP growth anywhere in the world it goes up and down it's that up and down that I'm interested in because what happens is economies trend and if they trend it makes them for castable and if their forecasts of all we know that they also can affect asset prices and therefore asset prices become for castable so it's this age-old trend I mean it goes back to the crop cycles and Egyptian times has always been a business cycle has always been big secular cycles driven by a number of factors so what I want to do is go through the various types of cycles the secular cycle which is sometimes called kondratyev waves then there's the business cycle and the shorter-term business cycle and many of these break down to other cycles too it's going to sound very complicated at first and in the end I'm going to show you how to put the whole lot together and make forecasting economies and asset prices much easier than you ever imagined it's not some sort of voodoo process it's all really about probability analysis and understanding trend in cycles so the first cycle I think we should look at is the the secular cycle or the kondratyev wave and some of the Austrian economists use in the past now again let's just not confuse Austrian economics with what I do in the business cycle mine's much more practical related again there's is a bit more theoretical but it's based in that element of understanding there is the boom-bust cycle and you can't avoid it if you're voting for certain periods of time you end up with a bigger boom or a bigger bust so anyway so the longer-term cycle how do we look at that how we understand really what the long-term picture is this is where I start with everything this is where I form my global macro framework and the one I look at first is demographics what's happening to the demographics of that country or that region so for example we know in many of the Western countries the demographics have aging populations aging populations tend to mean the consumer spending overtime declines at first an aging population means people invest in stock markets for the retirement but in the end they divest money from their from their savings to spend into retirement so that drives a lot of economic behavior and it's very important to understand demographics we have demographics as I mentioned in the West where things are looking increasingly less robust therefore we're seeing slower economic growth over time it's more deflationary for example my father retired several years ago 78 now but when he retired his spending patents collapsed you know he didn't buy a car every two years he bought one every five or six years and that's a very deflationary situation and that's one of the reasons why we've got a secular decline in inflation rate and edging into deflation also this tends to be excess savings in that cycle because these people need money to retire that also drives down interest rates over time and also stock markets as I said were driven up by these tend to get driven down over time by this process I'm also very interested in places where the demographics aren't the same as the West because you know you'd like to have a world where you got Long's and shorts I may be somewhat more bearish on the Western world in terms of asset price performance but I'm very bullish on other places and I've talked a lot on real vision television before about monsoon and monsoon is a region which is basically around the Indian Ocean and it's the countries with the best demographics in the world and the highest saving rates in the world and the lowest debt per capita in the world and lowest government debt in the world those are kind of like the US economy was in the 50s and 60s when the US had the baby boomers just starting and people went out into the workforce and bought their first car their first house their first suit that huge incremental spend is a inflationary but B tends to drive massive economic growth I'm going to appear a lot less on camera in this particular presentation because some charts I need you to look at spent some time dwelling so I kind of talk behind the charts at that's all right the first chart I want to look at is the chart of the long-term equity market cycle that's another chart we add on to the demographic cycle to get an understanding of where the global economy is going or the particular market or assessing how I look at this is use the ten-year moving average of the year-on-year rate of change of equities I know that sounds a bit complicated but basically it gives you the equity cycle you can see from the chart equities are very cyclical when we look at it in those terms we know that once they peaked we're going to get declining returns of equities going forwards for the best part of a decade or longer we saw the very sharp fall that we had from the 2000 high going down into the into the low back in 2009 however it's bounced back up again and I'm not entirely convinced that this market cycle is over because the time is very short versus previous cycles so that tells me that this is probably a shadow bounce in terms of returns and likely going forward is a process of more low returns coming out of stock markets and I think that will mean negative returns to come and I think the final bottom of the cycle will play out maybe in the next five years which will be basically in line with the other cycles and that's some of the things important things to know what we're looking again is probability the probability is that we think it will hook back down again much like it did in the mid 30s you can see on the chart so if that's the case then it's going to come back down to the low levels that we saw before any cross below about 5% on this chart means we get some really nasty surprises and a terrible economy knowing the global imbalances that we've got the chances are still high that that's the case because there's imbalances haven't been cleared all of the other market troughs we saw very low market valuations and low debt levels we haven't got to that clearing point yet so I think that's to come and again this probability allows us to understand when this is likely to happen because we understand that there's a certain length to the cycle so if we think the cycle now is rather short we know that there is a period of time which we should be expecting the bottom it gives us a probability that the bottom is still yet to come and that's how we need to think about things so now we can understand demographics and how they drive things we can also understand the equity market cycle so the next thing we need to and that's probably driven by demographics partly to be fair the next part we'll need to look at is the commodity cycle commodity cycle is one of the oldest cycles of all so the chart you're looking at now is the overall commodities GMI composite supercycle it's a long name but basically it's a mix of a whole load of commodities and then we look at the tenure and tenure moving average and again you can see it's very cyclical now what it tells us is the cycle has not bottoms yet that this is the global commodity supercycle busts that I've talked about in real vision and many of the other guests have we know that that bust takes a certain period of time to get to and we know that commodity returns stay around zero on a 10-year and 10-year basis for an extended period of time those bottoms last maybe a decade so we've got a long period ahead of both falling returns from commodities and then a whole period of stagnant or low returns from commodities many of you remember the final part of that in the in the late 90s before gold and oil and all those other commodities took off that was the final part of the commodity supercycle bust that all lies ahead so I really can't be bullish about commodities in a meaningful long-term way for a long period of time that doesn't mean that precious metals or cannot outperform because I know many of your interest in precious metals it does mean however that generally the commodity complex and I'm meaning mainly the industrials and potentially also the agricultural don't tend to do well the next part of the long-term cycle framework that I use is the debt super cycle I think many of you familiar with that it's the big boom and bust and build up in debts that happens over generations and it's that big unwind the secular unwind the debt deflation that is an interesting part to us or the big boom so again we can talk about countries like India or countries in the Middle East or countries around the around the Indian Ocean that have very low debts and a good demographic we would therefore imagine that over time that young population will borrow money with which to buy houses and cars and the debt super cycle begins and that will run for several decades until a point where the debt becomes unsustainable countries will evam flow within that and some will have a debt super cycle that runs too quickly Egypt for example had it recently had too much housing build we've seen that in the Middle East somewhat in various places but other countries don't have too much debt issues but over 2 but again when we flip back to the West we can see or we'll understand that there's huge debt problems the US alone if we look at total debt to GDP to world GDP is the most indebted country as a percent of world GDP of any country in history also the world is currently about three hundred and fifty percent debt to GDP which is the highest ever recorded in the world so we have a massive debt supercycle underway we know the rate of change of debt buildup is now falling that rate of change is the peeking out of the cycle and then we've got the overall bus to come the overall bust has to be when debts get written off inflated against or devalued again but that debt has to go and it can take a long period of time the chart decides our used to illustrate this point is the u.s. total debt as a percent of GDP which I referred to earlier but the ten-year on ten-year percentage movement now what you can see again is it's cyclical we had a huge buildup in debt in the early 80s and that debt is over time been slowing and we can see the big rate of change which were I was talking about the importance of the rate of change happening now we've got an enormous falling off in the rate of change of debt build-up and that generally indicates to you that the debt supercycle bust is under way and that process will take decades if not longer to sort themselves out we don't know how it's going to finish whether it happens in a big shock and I've talked about the reset before I've also talked about a debt Jubilee which is debt forgiveness these are maybe the ways we do it we don't know maybe there's a hyperinflation or inflation out of debt but over time debt burns are unsustainable and I know many people you know particularly the Keynesian camp will say you know what we can run debt burdens forever we'll just finance them by printing of money well in the end that doesn't work because something lets that debt unwind because what happens is the massive amount of debt causes a fall in the velocity of money and therefore any increase in debt or quantitative easing or any form like that has limited impacts so eventually the debt burden just becomes too big or deflation comes and your debt burden in real terms keeps going up and that's why everyone fears deflation is the rising debt burden when you've got such enormous debt burdens or so when we put all of these together we can see that the equity cycle the commodity cycle the demographic cycle the debt cycle are all going lower so if that's the case then we can't imagine a world where there should be per tracted growth it should be low growth with a bias towards periodic busts and this is why I have a bet bearish bias right now people think you know I'm the Great Bear I'm not on bullish on other places that don't have this set up this set up just generally tends to create problems and it means that the risk reward gets skewed towards more risk and less reward and I know that looks a bit funny after we look at the equity markets over the last five years or so but when you look back equity markets are produced virtually no returns over the past decade if not longer now and I think that's the thing I'm looking at longer term cycles here I'm not talking about the short-term cycle the short-term cycle is really the crux of what we need to use for investments one is the is the framework are secular framework next is how we implement that framework and where we are within it and that's why I use the business cycle so the chart you can next see is an idealized business cycle it kind of goes up and down that's the boom-bust cycle we're so familiar with and it would be perfectly measureable if it was like this because then we know exactly when the trough comes exactly when the boom arrives however it's not like that it's variable but it is still predictable because there's a range of outcomes that we know we know there's a certain length to each business cycle on average we know what the longest one is the shortest one is so once we know that we also know that as I mentioned before business cycles can trend and you can see that once it's peaked out it goes to a trough that's boom to bust recession we know there's a certain period of time with we know there's a certain depth to that cycle so that helps us forecast things but let's have a look at the real world a bit this chart is the business cycle versus recession indicators the recession is grayed out on the chart now as you can see it doesn't quite look like that idealized cycle but you can see it is a boom-bust cycle it is cyclical it goes up and down without there is no disputing that this is the simple failure most economists to understand this is why almost all economists never forecast recessions because they look at linear models they take a snapshot of the world today and assume that's where it's going to be tomorrow it's utterly clear that once you had a peak in the business cycle you know that the next major thing in the business cycle is going to be a trough which will be a recession therefore you can forecast a recession and when it's about to come and how long it will take and what it's going to look like so what is this voodoo magic where does this cycle come from I've just produced well it's really simple and you've heard me refer this many many times before both of my written research and also in real vision it's the is M the item is our best guide to the global business cycle it's a bit weird because it's the global cycle and it's the is M but I've come on to all of that later the is M is the Institute of supply managers survey in America and they survey purchasing managers and ask them about business conditions inventories sales and that kind of thing and they create a composite index and that comput index been going since 1948 and prior to that there was something called the Treasury survey that starts out thinking about 1896 I have all of that data and use it all the time this is where I think my competitive edge if I have one at all is it in understanding this I'm a bit of a nerd when it comes to the business cycle and what I love is very few other people understand it yet it's so intuitively understandable once I explained it to you that within 10 minutes you'll be able to make your own forecast about economies and about asset prices as well I've been around various universities talking about why what they teach at University and economics is rubbish and I base it on this to say I can get you as a student to forecast the economy better than most Wall Street economists over the next three to five years and I think that's the genius of what the business cycle does for us so this chart is the chart of the is M as I mentioned before basically what you need to know is when it crosses 46 there's a hundred percent chance of recession when it crosses 50 there's about a sixty five percent chance of recession when it crosses about forty seven the odds rise over eighty percent how do we get those odds well we basically look back of all other past examples and keiko calculate the odds how many times did it do this at this certain time or this certain level so that's how we get odds from this so I know recently that the item has been bouncing I think it's likely to be a short-term bounce because of the secular cycle that we know and that we have not had a recession yet we may be starting one that I've been calling for for some time now suggesting the 2016 as a recession year it's a bit early to tell but I still think it will play out that way but the point being is the likelihood is that the item still has further to go to the downside there are times when it didn't and we can see the failures in the mid 90s where it chopped up and down but we didn't get a recession that was the Greenspan years with excessive use of monetary policy that got us all of the problems we are today it's a concept that I've talked about before which is suppressed volatility leads to hyper volatility Greenspan thought he could manage the business cycle and eradicated entirely and again Economist's and media grouped together and said the business cycle is now dead that was his rubbish they suppressed it and what happened after that was two recessions we had a bust of the tech bust then we had another boom and then an even bigger busts and I think that process still has not played out because the debt bubble has not played out so that the hangover from both the Reagan years and then into the Greenspan years with the big debt buildups those haven't gone yet and they're still yet to be worked out so anyway my bias is for the ice m to continue to fall over time again I can be wrong it's based on probabilities but I still think the probability lies in my favor so why do we care so much about the is N well this chart shows you why you need to care it's the is M versus u.s. GDP they're basically the same thing so the business cycle is the economy which is the point that so few people understand but make it very simple so therefore we know where the economy's going if we know where the ice going so when the is M hits something like 46 we know the US economy is going to be in recession so it's going to be at zero or below so that allows us to forecast going forward what we think is going to happen because both the economy trends and the I M trends because they're the same thing you might say well this is just the US and the US isn't the world well the point I'm going to make is it is the world this chart that I'm showing now is the is M versus world GDP they're highly correlated there's a number of reasons for this firstly the US is the larger consumer of goods in the world so they drive everybody's manufacturing cycles which is a key component to the business cycle they also drive the debt supercycle so with that debt they put more and more goods so the US is the key consumer in the equation of the world and drives the world's business cycle and I think that's very important also US manufacturers are prevalent all across the world you know there's big manufacturing plants in China or Turkey or wherever else in the world so their activity drives the business cycle in those countries too but you might say to me you know what well yeah that's a bit funky chart you love putting these correlations up but don't really mean anything because you know the US is a big part of global GDP yes it is a big part of global GDP but the point is is it's this relationship is prevalent across many many countries so here's the chart of the is M against South Korean GDP and again they're highly correlated why is that is because one is the consumer and one is the exporter and that's how the globalized economy works right now so anything that happens in the US economy drives the South Korean economy this is one of the reasons I'm bearish on South Korea right now it has a lot of debt itself but its behest of the US cycle and also the Chinese cycle the Chinese cycle is largely negative now for the same reasons debt demographics deflation I know that these kind of chants don't fit into the world of theoretical economics because you can't model them as easily I think you could model them if you understood or if I were smart enough to model them but basically it's it's the nuances within this that's important it's not you just read the level of the chart that's where GDP is we can do that but that's taking snapshots of now here and now that's not what I'm interested in I like to look into the future that's what we do in global macro and that's what the investment world does you have to live in the future and understand what the path is to get there so as I've shown we now know the global top-down framework we know that the global economy is generally particularly the Delap developed world weakening over time we know that gives a propensity towards recessions and slow economic growth we've then looked at the business cycle and we've seen how it correlates to the u.s. GDP global GDP and countries around the world we know that the business cycle is rolling over it Peaks sometime ago back in 2011 in fact and therefore the probability should be of a weak business cycle going forward we could get an outcome like the mid nineties where the economy just kind of models through for a while and asset price continues to do well I think that's less likely there is a probability of that so I think once we combine all of this our propensity has to be to assume that things go lower rates of return go lower and economies go lower so the next thing we need to look at is what use can we make of this why does it really matter to us why does Rao endlessly bleat on about the business cycle and I think this is where the important thing is let me flip up the first chart and this is the chart of the SP year-on-year versus the is M so here you go you can see the chart that I put on Twitter quite a few times I've also write about endlessly in GM is one of the core components of what I write about in GM I and it's also something I prefer to unreal vision I promise you this video for this purpose so you can better understand the business cycle - the relationship between the is M and the SP year-on-year is incredibly close again we're not looking for the correlation of every data tick some people come back to on Twitter and say you know it's only got this correlation when you look at the data ticks I don't care about the data ticks it's the trend we care about once we understand the trends we can understand that if the is M is falling then the rate of return in the S&P is falling when the is M crosses something like 50 the rate of return in the SMP versus a year ago is negative or zero to negative and I think this is the important thing to know so that this is why when you have recession equities tend to be in a bear market because of the relationship the business cycle why is that well obviously corporate earnings it all related to the business cycle in a strong business cycle you make more profits in a weak one you make losses and that's just how the world works equities have to be the business cycle now what's interesting in this chart is you don't see what everybody says is the QE build-up or the bubble that's created by quantitative easing there's no disconnect in this chart it tells you that over time that valuation increase that's a trend that doesn't get picked up particularly in this is n we're not really looking at the long term valuation trends here what we're looking at is the disconnect from the economic cycle or the future trends I'm a big student of history and you know I don't like people who use you know charts over the last three years ago there you go there are three eight correlations that work and sometimes they fall apart again it's looking at probability rate format falling apart or not but I think this next chart I think that might blow your mind this is the isn and the Treasury survey going back to 1896 and their relationship with the year-on-year SP it is extremely good and it always has been so once we have something of that quality that history we know we can give it massive credence so if anybody says it's a spurious correlation they clearly don't understand what they're talking about and again why simple economists cannot understand these relationships or strategists and forecasters is beyond me it doesn't mean I'm always right clearly I've got it wrong several times but what it means is over time I will have a probability chance of getting it right more often than somebody who used linear extrapolation is built based on models again just to get the point at home about corporate earnings just so you really understand the relationship this is the chart the sp500 versus earnings per share adjusted year-on-year again you can see as expected hugely correlated so any strategist who tries to forecast anything to do with equity prices without understanding this it's a charlatan but you know what's great is it's not just equities I can predict with the business cycle because obviously commodities move too so let's look at this next chart it's the chart of lumber year-on-year versus the is n again the correlation is incredibly good so now you can become a lumber expert in seconds you knew nothing about lumber now you know what the Year only a change of lumber is going to be you can extrapolate a price versus where it was last year and understand what your forecast would be for lumber prices going forward it's pretty easy really but you know what this magic cycle is not just lumber it's also copper copper dr. copper as people call it it's an economic indicator why well look it perfectly matches the eye osm there are a couple of times when it doesn't and commodities can get into this phase of massive excess speculate at the speculation or a huge increase in demand the main couple of times that we've seen something changing copper were the two massive spikes in the early 2000s and that was based on China and they're huge huge infrastructure spending first one was with going into the into the recession just before the recession the Chinese were running a hugely hot economy creating massive demand for copper was this massive stimulus after the recession that caused another buildup of bridges and roads and stuff in China excess capacity the cause of a spike in the price of copper year-on-year but overall again we can predict what's going to happen to copper prices going forward and we also know that the secular cycling copper is going down so now we have a view the setlist price of equities is going down the secular price of copper of commodities are going down and we've also got the business cycle in copper is pointing lower the business cycle in equities is pointing lower now you're building an investment framework very quickly and you start to understand how to forecast this stuff and again there's more magic to come it's not just those we can look at the oil price - obviously oil being the most industrial of all has to have a correlation with the global business cycle and yes again like other commodities you get these supply squeezes or demand squeezes or troughs that occur but generally speaking they closely follow the business cycle this next chart helped me a lot and predict the falling price of oil from back in a couple of years ago when I said at 120 dollars a barrel it was going 230 all I was doing was extrapolating using the crude oil year-on-year chart and the ISN and you can see the relationship still holds it's been a bit screwy recently because of how you match the lows in the highs you can shift around these charts a little bit because they're not perfect and they're never supposed to be perfect so if anybody comes back to you and says yeah they're not a perfect fit look at those gaps I don't care about a perfect fit it's the nuance it's the texture it's the direction it's the core trend that's what we care about it's the overtime relationship with asset prices that we need to care about and I think this is a very clear chart so now you were an expert in commodity prices and you're expert in equity prices you're experts in the business cycle you can forecast economic trends and we've done that in about 15 minutes the next thing I'm gonna turn you into is a credit expert now again along with equities I'm not expecting I'm not suggesting that this will help you bottom pick the particular credit or particular equities or particular movements in certain short term time horizons commodities what is giving you is the context so if I pull up the next chart you can see how Credit is perfectly correlated to the I am too this chart is the chart of B double-a vs. triple-a credit spreads what it's showing you is when the economy weakens obviously credit deteriorates so it's an obvious relationship that I hardly ever see a credit analyst use or credit strategies it's ridiculous because it's so usable and so easy so again what we know with credit is credit follows the is n we know that the is M is going lower potentially we therefore know that credit is likely to blow out not by complicated again the complexity is in the outcomes where probability is in your favor but it doesn't play out that way which would be the 90s was a classic example of that and again I keep referring to that because you know I never want you to believe that this will make you foolproof but over time it will give you a better probability of being right also bond yields correlate obviously very well to this and interest rates do well they used to this is where you see quantitative easing screwing up things because suddenly the bond market disconnected from the business cycle because there was no inflation that came so that was a broken part of the of the business cycle over the long term and also because the central banks became the world's largest buyer of bonds so distorted the business cycle and kept bond yields low that's one of the reasons I've been particularly interested in being long bonds because I think yields are going to fall because of the central bank buyer the secular backdrop and the fact that they do follow the business cycle to the relationship is a bit screwy with the business business cycle as you can see from the next chart but the point being that over time the business cycle does move bond prices because it also moves inflation so this chart is the chart of the CPI against the is M the CPI against the is M is the same relationship we can forecast inflation by using the business cycle so this is why I have argued for so long with all of the consensus forecast at the beginning of each year because they've all not forecast the business cycle is weakening over the last three or four years and therefore inflation will fall over time it's simple and if we have the secular backdrop that we've got we know that this inflation is the key trend leading to deflation so again it balances the probabilities in understanding what's going on you do get situations where some cycles are shorter some are longer some are bigger some are less big there's things that we don't know about the cycle and that we have to try and reassess the probabilities as we go so how do we do that because you know my probability is that I think the item rolls over but where am I getting that probability from okay the back data the length of the cycle it looks like we do a recession in terms of the average length of a cycle this is about the fourth longest cycle in history how it's been morphing in terms of its trend we understand that but what I then do is I look at something else in this whole framework which I think nobody else does in the same way which is look at the short-term economic cycles for that I use the city economic surprises index or sessi as it's called on Bloomberg and that's give me a tremendous advantage is something I stumbled across maybe four years ago and that's going to be a tremendous advantage to understand where we are in the business cycle itself and if we're going to see some uptick in data down taking data that's going to cause the item to rise or fall on its way down because you know nothing goes down a straight line it tends to ebb and flow on its way down so this chance is the chart of the sessi and what it is is the short-term economic cycle it's basically how much the economic data is coming above or below consensus forecast so if people are overestimating the economy then I data is coming out weaker this se Falls if they underestimate sessi rises and it's incredibly cyclical as you can see here a them must be within the economy a seasonal cycle that's not picked up in any of the in any of the data adjustments but it does give us an advantage for that because it means that we can understand when the economic cycle is weaker we know looking back and back testing that when the city economic surprises index is going negative then the likelihood is for the is M to be falling if it's in the part of the down cycle if you remember we have an up cycle and a down cycle in the is M and the sessi reacts differently or the is M reactive really depending what assessees doing and where we are in that particular cycle so in up cycles in the negative part of the sessi cycle we tend not to see the I sin being affected much it may crawl higher it may stabilize for that particular month or two while the cess is going down and then when the says he goes up again it continues higher on the down cycle the propensity is for Falls so when the cess is on its way up in the is M down cycle you tend to see small rises in the is M or sideways trends when both are pointing lower then you see much larger moves in the is M we're currently trying to find a top in the ceci now we had the lowest ever top in history in the last ceci up cycle it looks like we've topped out again below zero and we're rolling over that means we should expect economic data to come out weaker than expected and that will drive the is n lower to so what we are expecting is this little uptick we've had in the ice m in the last couple of months should peter out and we have the balance of probabilities in the favor of it falling obviously we assess as we go if something changes if this SE down cycle doesn't bring the ice em down then we have to mark that is interesting maybe something shifted but all I'm trying to explain is is how to best put things in your favor for you to understand what's going on any one phase within a matter of minutes that ceci charts allowed me to do interesting things I've been able to forecast because I know where the ice m is so back last year I was I said that q4 to q1 was going to be very close to recession in the US because the sessi was down and the is M was down or guess what it came out pretty close to zero now we've had the uptick and now it's rolling over again as I suggest so I can go out and make a forecast and say I think the US has a high probability chance of being in a full recession by q3 2016 so there you go you're basically an expert in the business cycle you can forecast asset prices around the world you can have a good understanding of what bets you should be taking what bets are riskier I think all you need to understand is you start with the top down the big picture where are the secular cycles you then go down to the business cycle where are we in the business cycle what can we expect going forwards then you look at the short-term cycle and understand that you put all of those together and you have a really good understanding so if I were to look at those as you can tell my probabilities have to be biased towards being bearish equities but equities won't really go down until the isn crosses 50 it crossed briefly we had a sell-off from the eyes in the equity market it needs to cross 50 again for us to get baritone equities which is why I'm not particularly bearish inequities now I've a bearish bias but I don't have many positions however I do have bond positions because bonds tend to just follow the cycle anyway and with the secular backdrop I know that they're going to fall in yields over time and bonds tend to look forward towards recessions much earlier than equities do so I think overall you too can make any forecasts you'd like maybe you think I'm wrong and you say yeah understand the probabilities Rell but but I think that we're going to get the 90s again well if that's the case you can set a group of parameters around where your wrong way or right what the item should be doing or the assessee should be doing and you could trade accordingly you could say that a fade your view rail because I think we're going to muddle through muddle through should mean the equities tack on you know 5% 10% a year gains for the next couple of years it's distinctly possible yeah I'm very nervous seeing the equity market near its all-time highs again but again we can't tell anything until we get the next big move out of the cycle once we do we'll know everything and I think really what I wanted to do this is I for a long time been promising to write a book about this and never having the time I just get very frustrated in what happens in the world of economics and the world of economic forecasting everyone's increasingly frustrated with the Federal Reserve who can never forecast anything correctly so most of the Wall Street economists who don't they get periodic snapshots of being right but nobody will dare give themselves a probabilistic framework of how right they will be over time but I can pretty much do that with how I do this I think to try and pretend everything as a science is lunacy what you should understand is this is a behavioral science which makes it an art what understanding human emotion human behavior and these things are what drive economy these things are what drive asset price and once the world gets a bit smarter and universities teach people more about the real world of economics and what really drives financial assets then we can have a better investment world and I think that's one of the reasons I started real vision was to get people to understand there is a broader world than the narrative you are generally given by the media or by your university or by your workplace or by the firms you work with and I think it's really important to broaden your horizons and understand that the world is not how people tell you it is it's a much more complex in nuanced world but it is for castable it is predictable within relative ranges and nothing is perfect but all we're looking for is something that's more perfect than anything else I hope you found this useful and I love to hear any feedback thanks very much but the law of unintended consequences is really there is no world after the tomorrow were China devalued by 20% there is no one I start from the presumption that the consensus is wrong my best advice is that you can't bring your ego into this 20% is going to be the center of China whether we like it or not 80% of all the crowdfunding platforms in the world are funded by hedge funds because that produces a return

Channel: Real Vision Finance

Views: 137,020

Rating: 4.9211268 out of 5

Keywords: Investing videos, finance videos, finance interviews, finance, finance 101, business finance, finance major, investing, trading, economy, real vision, real vision app, real vision tv, real vision videos, real vision finance, macro insiders, insider talks, real vision macro insiders, real vision insider talks, macroeconomics, raoul pal, economic forecasting, investing presentation, investing news, how to invest, macro

Id: SDoIbFuKgfU

Length: 39min 36sec (2376 seconds)

Published: Mon Jun 20 2016

Reddit Comments

[u/VPride1995]

Might get high and try to watch this

[u/mark000]

Real Vision TV is offering you the chance to become an expert in financial forecasting in less than an hour, for free. It’s that simple. Watch & learn

TIL fuck the rest ISM is best!

[u/_Aether__]

I keep saying this. Recessions HAVEN'T TENDED TO CORRELATE WELL WITH EQUITY PRICES!!!!!!!!!!!!!!

Last 2 have though.

Also, I'm surprised he didn't use the unemployment rate 10 month MA as a leading indicator of recession. Obviously it's not as robust as this ISM and CESI stuff but it takes out a lot of the need to forecast (the indicator itself is leading)

[u/thethiefstheme]

On one hand it's a good video, on the other hand he's british and probably voted for brexit so fuck this guy.

[u/chezchad]

His Chat With Traders interview is pretty good. Guy seems super smart, and it seems like a lot of the industry heeds his advice.

Edit: What I remember is long GLD and long USD/EUR specifically, but long USD and gold in general.

[u/Bicepticons]

Maybe I'm ignorant since I've never heard of him before, but I'm not sure about the credibility here, as this guy seems to be all about trying to predict crashes. Google his name...here he is from a 2010 article: http://www.businessinsider.com/global-macros-raoul-pal-heres-why-a-crash-is-coming-in-two-days-to-two-weeks-2010-5

[u/SIThereAndThere]

No Shit