An Update From Raoul on the Geopolitical Situation and What It Means for Investors

[Music] hi everyone i'm traveling right now so i'm doing this for my hotel room but i thought there was so much important going on that i need to give you an update now with geopolitics as i've explained it is a really difficult game to try and understand the probabilities and what you should do the first thing to do when it comes to geopolitics is to do nothing is to watch absorb and try to understand what the playing field is here what the ramifications are now i must admit i didn't think that we'd get this far this fast in terms of russia's actions within ukraine so i've been slightly back footed but i've already been expecting a global slowdown in in the economy and so i've been starting to position that way by buying bonds some gold some dollars that kind of stuff but let me talk about what i'm seeing now how i'm thinking through this current event and then some of the ramifications now this is geopolitics we have no real clue how this will play out that's why it's so hard economic events are much more forecastable geopolitical development events have many more different nuances and you have to use that kind of decision tree structure to assess probabilities of all of the things that could happen and trying to figure out okay how do i protect myself can i make money out of this what does this all mean for the much bigger picture so there's a lot here so let's dig in quickly to where we are now there are as ever in geopolitical disputes two sides of a story and when you're trying to analyze geopolitics you need to be aware of both so then you can understand what is propaganda who you're being told by what person for whatever reason and in this situation we know russia has been very clear on its intentions to buffer its borders peter zihan's piece the other day made it very clear i think d smith's gone through this and most of the geopolitical strategists we've had on real vision have also looked at this so russia has been very keen on stopping nato in croatia on its borders nate on the other hand is very keen on not letting russia encroach on its borders but it's been moving nato's way and this whole game has been played out for some period of time i've written this up in gmi and written it up in macro insiders or real vision pro macro is this whole situation that we saw started with chechnya then moved to crimea this ukraine story was the crimea story then it's the splintering states then it's uh ukraine itself it's been a story that's that the russians have had an obsession with in how they want to deal with it for their own sovereign protection and i don't want to go into the geopolitics of who said what to whom and why um that's not relevant right now what's relevant is trying to figure out where we are so i think we have a very narrow window maybe two weeks maybe less which is that the russians have surrounded kiev pretty much now we understand that the supply chains are not good but we also understand the russians have done this a lot of times before with bad supply chains is pretty common um and sheer brute force is how they do it so they're surrounding kiev now and what happens in the next few days or a couple of weeks is vital you can see the israelis have been negotiating on both sides maybe there's a negotiation be to be had here and the negotiation would be something like and again we don't know because this is geopolitics and there's a lot of different national pride and a lot of consideration global consideration all in this but let's assume that they can agree a ceasefire agree some sort of um um splitting up of ukraine so they allow the splinter states then maybe they say well the government can move and have its own ukraine but over towards um the west side and the russians put a new government in in eastern ukraine they have west ukraine east ukraine something of that sort kind of solves a lot of the problems although obviously it's still not a good situation and we'll come on to the big picture still later but that could see a de-escalation if we can find some variation around that where the ukrainians themselves get some sovereignty they will may lose some sovereignty or they keep sovereignty of the whole country but a puppet government gets put in and the splinter states go to russia in which case they're kind of surrounding um ukraine anyway with crimea as well that to me is something where sanctions get dropped not dropped but eased off over a period of time because everybody feels like that they've negotiated a settlement and therefore russia can be rewarded with something that's the best possible case scenario that i see right now um it's not my highest probability case either case number two is that the ukrainians don't negotiate don't surrender and the russians level kiev which i think is the highest probability case again i find it really tough to assess the probabilities but in my mind that's what i think the most likelihood is then the russians say they've got two choices one is to keep ukraine as ukraine or the other thing they've been threatening is take away sovereignty which is i russia takes over ukraine they either put in a public government it might be too late for that now or they take it over okay that is a bad situation a really bad situation because clearly sanctions are not going away nato is going to amass um weapons and defenses on the borders tensions could be extremely high and the food crisis is going to be writ large so in scenario a the food crisis still happens we still go into a global recession i think that's almost a certainty now we were going there anyway and now this is exacerbating it and that's not going to go away i think we're going to miss the harvest season in ukraine i don't think he's going to get a chance to harvest when you're at war and then the planting season gets missed as well then we've got the situation with fertilizers etc it may be a very difficult uh agricultural season globally so that's one on the second situation if the sanctions are in place longer now we've got a full splintering of supply chains that has to happen and it's forced to happen in a in a period of time that is a nightmare situation where peter zion's world of really dramatically increased food prices leading to civil unrest crime all of the things on a global basis is pretty likely um that's really ugly what that can do for the middle east what it can do other countries i mean i'm in utah right now and the taxi driver i always chat to the tax driver um and i asked him where he's from he said sri lanka um i said how's things in sri lanka makes said terrible i said why what's going on he said well people are out in the streets rioting or protesting there's massive queues outside the gas stations i said yeah gas prices are high because well that's not the issue the issue is the government's run out of dollars to pay for them so they just didn't buy enough gas so there's not enough gas for the country these are the kind of linkages that happen in situations like this if russia remains out of the global system which looks increasingly likely then we probably had a big liquidity problem and that spits around the world in various ways whether it's countries who are trying to get access to dollars banks trying to get access to dollars or whether it's credit spreads widening as people pull back trying to assess the risks that are going on and we don't really know i mean how does it affect egypt how does this affect the middle east at large how does it affect all sorts of countries again we don't really know yet but that's a hugely concerning moment and that's a big global recession if that takes place and a massive monumental geopolitical shift as the world really is forced to separate out china starts separating out and again we'll come to a bit more of that in a sec scenario three is the worst case which is i think that russia has made it clear that if you oversupply poland with with weaponry to give to ukraine then they're going to consider poland as part of the war this is peter zion's point about a potential invasion of poland i put that at a low probability what the hell do i know if that is the case then okay this is now the worst case situation because this is nato versus russia in a full war um i mean i can't believe i'm saying these words but that's where we are and it's kind of shocking and terrifying the issue i have with all of this and i had underestimated it is the knock-on effects are much larger than i first realized that how things can spiral very few decisions into something utterly terrifying that we've not had to face certainly in our lifetimes and certainly not in in the west other regions have obviously so it is it's kind of on tenterhooks the next two to three weeks we will find out whether we have scenario one scenario two and then after that would be will scenario three come into play so those are the three main things so what are the ramifications the ramifications is something i've been talking about d smith made an incredible five-part documentary on real vision called the world on a brink and if you haven't watched it you absolutely should watch it it's forecast all of this and that was made back in 2015. the world is splitting i think everybody is aware of that deglobalization rip large everywhere and everyone's going to have to go to localized supply chains and so that means the us canada mexico will become more interdependent i hear that the us is making moves towards venezuela to see if there's anything that could be solvable there the us needs another footing um over in the east and obviously iran with its oil supply is a very important place and always has been in the world uh anybody who wants to understand that read the book called the new silk roads which gives you peter francophan's book silk road gives you a whole understanding of why that region is so important particularly iran itself so i understand why they're doing that because it kind of neutralizes some of the situation and some of the supply shortages going on the other issue in the geopolitics is everybody has now learned that the dollar is a liability not an asset so ie dollars can get taken away from you at will so even though it looked like a very smart move to weaponize reserves and the financial system what is actually happening is you are now forcing the dedolorization of the world now my view on that is that's a slower process obviously russia just got thrown out but they've been planning for it let's let's be absolutely clear russians have been planning it they probably didn't imagine this fast this uh apocalyptical but the chinese will be planning it too the central bank uh digital currency is part of that planning so everybody wants to move away from the dollar and right now the instant thing that any central bank can do is own more gold so i think this is a very bullish gold environment uh for central banks because that's what they do it's an asset that they're comfortable with i also find very concerning at the geopolitical level that we have frozen the assets of people that have not been tried in any sort of cause now it depends whether there's a confiscation going on here or freezing of assets it depends on eu law and who's taking what but it tells people that property ownership is not something that they perceive if it's if you own a property that's not in your jurisdiction you don't own it so i think that is again a shift that's going to take people's mindsets obviously all of these trends are very bullish for bitcoin particularly but the crypto world overall over time now crypto trades both as a risk asset and a store of value the store of value element is becoming predominant right now and very clear the risk aspect well it's a bloody risky world out there so let's wait and see china how that plays out in all of this we don't know but china's been moving towards separating and i can't yet think of all of the ramifications as we are already splitting these worlds apart if this gets accelerated what does that do but the world is a net debtor in dollar terms and the more of these debts you start writing off by forcing people out or seeing defaults the higher the dollar goes and the dollar is a big risk here so if you get a liquidity squeeze the dollar goes up the dollars are the one thing that i'm looking at but we also know that the fed try and stop that because they know the dollar is the wrecking ball they can't let the dollar go up too fast so they start supplying the world's uh the world's banks with swap lines so every time they've done that in the past it's eased the issue but here you've taken out a very big economy i mean russia's gigante russia probably has more natural resources than the rest of the world added together it's something of that magnitude so the gdp may not be big but this asset base is enormous and without that in the world we end up with a huge loss of trade and we've also got these dollar liquidity issues which i think will bite the europeans uh by the us and by everybody else so i think that's all setting up to be a bit of a mess the fed will come in and try and flood the market with swap lines so the money printers start in different ways and i know there's a lot of people watching school that's not money printing it's enough to start changing the denominator effect of certain assets so be cautious of that one i actually like bonds in this environment because if you raise food and fuel and input costs you're destroying demand we've already seen demand slowing globally we're already seeing a lot of forward-looking indicators i've written a lot in it and i wrote it up in the gmi that you all got i think everybody got it there's so some of my thinking about all of that and i've been writing about that frequently in gmi and um macro pro as well to talk about how that's playing out but it's playing out exactly as expected the world is starting to slow down uh the us is starting to slow down bond yields are starting to come off and i think even with higher prices i know everyone thinks it's inflation i think there's a massive tightening of monetary conditions and total demand destruction on lower middle class households so i think that is a big problem coming and i think bonds should fall in yield and you know right now us bonds are a safe haven so there's safe haven flows that come into that as well i think generally speaking bond yields should come down towards the one percent level and let's see are we building structural inflation by the changing of supply chains or does that get sold by technology you know are factories that come from china using people that are moving to the us using robots inflationary or deflationary maybe it's inflationary first as you build them and deflationary over time as the costs come down as i said before the digitization of anything tends to push costs uh down to zero over time so i think that's going on i think in europe we've also got sorry there's a lot to jump around with um with the green energy push and i know a lot of people think it's dead poland's been fighting for it to stop the carbon system but europe is under pressure to in the medium term transition away from reliance on energy from russia or maybe algeria which is a southern neighbor that has a decent amount of gas it has to move away from that and the only way is to go towards renewables there is a friction point it takes time and that friction point can cause these supply disruptions because there's not enough supply and there's still demand for it so that has to change over time but i don't think the europeans want to get rid of the carbon system they set up i think they need to encourage it and i know it's painful so i think the europeans are going to start dealing with pain via fiscal stimulus i think they're going to have to give people money to pay for the rising cost of fuel and food um that's an mmt style transaction where essentially it gets monetized by the by the ecb and maybe they do similar um to yeah i think they want to offset the fuel costs to people but still get force the corporations and the utilities to change to green because if they don't change then they're always going to have this reliance now if this flares up further with poland and nato and russia i mean there's no way they can justify having that reliance so that's a complication there are side deals that we cut russia and germany um have direct pipelines there's you know again i don't know but we need to be very cautious of how this plays out um so that's the carbon situation because you know carbon credits has been a trade that i've been in for a while they've had a huge sell-off i actually quite like it but again it's much less clear at this situation so i will give you that i don't really i'm not sure bonds i think are a decent bet gold for the reasons we've talked about or a decent bet long term i think it plays into what crypto is and means in this world a distributed network that's not owned by anybody but owned by everybody is almost priceless in a situation like this um i think when it comes to equities we don't know if situation one comes across i we get some resolution it's a dirty ugly resolution but it's something then i think equities rally um i think that is possible i think even scenario two equities can rally um if they finish the invasion and then something we get some clarity clarity is what markets want is it going to go into world war three or not is what we're trying to grapple with right now if not that's okay markets could rally then they have to deal with the recession coming the markets sell off again for that quite possibly so it's not very clear equity markets are troublesome i've been waiting to to buy tech and i don't think we can get there until we start to see the monetary spigots opening up again and i think they will come and i think they'll come in form of transfer payments don't forget transfer payments was the new genie that came out of the bottle in covid is they could give direct monetary handouts to people as opposed to just blanket fiscal stimulus by cutting taxes and i think they're going to have to do that here because people are going to get really hurt by the situation of food prices and fuel prices now can you trade commodities can you can you expect them to go further the hard thing is we don't know a resolution that half of these commodities are down 50 in minutes so it's a really difficult world to try and own them and volatility's height it's hard to own calls so to make sense of the world buying commodities doesn't feel like a good bet the ramification of the high commodities which is slowing growth remains makes bonds a good bet the ramifications of the weaponizing of reserves makes gold a good bet the dollar is a generally quite a good bet on a massively key level against the euro i've been tweeting about this if it breaks the kind of 109 108 level i mean it's going down to 80 cents i think that's probably likely over time but i think the central banks will step in first try and slow it it probably goes down over time because europe has no choice now but to militarize so germany has kind of kept away from doing that most of the nations had they're now going to probably have to break their three percent budget deficit you know implied rule that they've never stuck to but the germans can't increase its military or it's spending to nato without doing that they're going to have to do that in this situation so even in scenario one with the dirty compromise the russians the french the italians everyone's gonna have to spend on military so there's a huge boom in the industrial military complex as ever those guys make money out of everything um but that means that deficits run and the euro potentially weakens over time and it weakens over time also because europe is threatened so do you want to own your money in euros less likely the us is much more removed from the situation again is much more attractive and europe just hasn't been producing the kind of growth that the eu us has at corporate level so i think the euro falls significantly over time until maybe euro europe has bolstered its defenses and we have some resolution of this situation but a longer term resolution not what happens overnight with ukraine so i am bullish the dollars but you need to be careful because central banks get involved i think thematically i think generally technology is global and is less reliant on these supply chains apart from the monetary supply chains but i think the central bank digital currencies will allow some sort of interoperability but these can be cut off and cut on again as we've seen with facebook in russia and stuff like that so overall i don't think it stops the rise of technology because you need to you know produce robots to produce stuff in the us or in europe to avoid reliance on on other nations um those linkages between canada the us and mexico sound like that's an important place to focus um because we will see money pouring into that kind of opportunity the industrialization of america you know obviously things like copper which are all very tight aluminium these things will continue to go higher there's almost no way you can reindustrialize even at a kind of robot level without using more and more copper so you're kind of in a copper super super cycle whether you like it or not so that probably continues and the fact that the russians the huge producers of literally everything um makes the situation complicated so i don't think we get a resolution a mean reversion to commodity prices uh for a significant period um i can't see if russia hadn't invaded then i would have seen a reversion but now i just think the world's going to have to deal with having to find new supply chains in that scenario one i think there's going to be a weakening and sanctions on russian commodities so they'll they'll sanction them a bunch of stuff but they'll say through the back door listen we need the we need the copper we need the nickel we need the oil we need the gas which is a bit of a show but that's that's kind of i think the state of the world it just depends how much how tough europe will be on this and how much pain it'll take which again is i think it's fiscal so once we start saying fiscal stimulus obviously risk assets tend to outperform because the denominator falls so look there's a lot there and i've skipped around a bit there is virtually impossible to assess probabilities because you're dealing with human behavior at an individual's level and we just don't know that person well enough we don't know how poland's going to fit into this where russia's line's going to be who's going to side with whom we don't know what it means for the middle east we don't know what it means for china we can make a bunch of assumptions so i think it's best not to try and be too clever too cute pick the exact scenario but go at the top level macro to say okay what are the things here that can help protect men and those will be gold bonds dollars and i like crypto but i would prefer it if we had the central bank printing it feels for crypto very much like the setup in 2020 in march when uh we sold off really hard failed to make a new low versus the low a year and a half a year in a bit ago prior and then took off we haven't made a new low we've thrown a war at crypto we've thrown um you know chinese bands we've thrown all sorts of stuff eight percent inflation uh central bank with unexpected eight rate rises which is never going to happen um and crypto didn't make a new low so i think there's a signal there but again we need to watch it i don't think that's the bet to put all your money in right now and all of my money's in it but um but i am adding to these other trades um [Music] the crypto situation gets interesting i think as people start to realize that at sovereign level this becomes a solution for them too and the rise of central bank digital currencies they're moving away from the swift system that's all coming into this game um that's about all i can think of for now follow my twitter feed so i'll try and put some thoughts out there if i've got anything really major to say as things develop i'll let you know just be careful try not to be too brave this is not the time to think that you know it all because you don't and nor do i so everything has a shifting probability and we just need to be on top of the news flow it's another thing to remember with news flow there's an enormous amount of propaganda from every side so you don't know the truth and you will never know the truth you will never know whether russia is exactly meeting its plan or whether every tank is falling apart because it's ancient and the russians have no will to fight all of that is propaganda what the truth is node knows and it's usually a bit of both so just again keep your filter up just filter it out and just look at the top level you know where are things moving what is going without trying to be too clever in making assertions because i've seen many people blow up their entire p l by thinking they know what's going on when really they don't anyway best of luck out there sorry it's horrific times everybody's trying to scramble to get an idea and i think geopolitics is about to be a much larger part of what we're going to have to deal with which i don't like because it's all so unknown and everybody can sound smart in geopolitics by sounding scary and shocking and everybody wants to listen so just be careful of that too anyway best of luck everybody and i'll touch base again soon [Music] hey there since you got to the end i'm guessing you like the video and that's probably because we don't just turn on a camera and film we work really hard on getting the narrative flow just right and that's why many finance companies are actually now hiring realvision to make videos for them one of our recent client videos just hit a hundred thousand organic views on youtube and there were no kittens in sight so if you want to find out how real vision can make a video for your company just email us at customvideo realvision.com you

Channel: Real Vision

Views: 343,124

Keywords: Finance, Markets, Economy, Stock Market, Investing, Trading, Education, Financial Literacy, Recession, Interview, Conversation, Strategy, Insight, Analysis, Facts, Data, Fraud, Entertainment, Thesis, Short Seller, Real Vision, Equities, update

Id: klOSrrN4ETU

Length: 26min 47sec (1607 seconds)

Published: Mon Mar 07 2022