Raoul Pal on global market insolvency and Bitcoin at one million dollars.
When Raoul talks, investors listen and today is no different. Raoul is the co-founder of Real Vision and is one of the most trusted names in the financial world.
We asked Raoul to give advice on portfolio positioning including Gold, Bitcoin, Cash, and stocks. We also wanted his take on the market crash and what comes next.
Raoul believes there are 3 phases of a market crash:
Phase 1 – Liquidation panic – we saw this in March 2020
Phase 2 – Hope – mobility + rebound – current sentiment (Jun 2020)
Phase 3 – Debt Inflation – Less cash to service debts
What do the central banks do?
As real rates go up – tightening rates in a recession means its harder to pay your debts back This is where insolvency will happen. A solvency event will happen because cash flow is too low to service debt.
Bond yields have continued to fall and less revenue is going to massively impact everything. From socializing, the expenditures, conferences, business travel and all will be much less which reduces cashflow to economies.
Insolvency is rife within all sectors from personal debts including student loans, auto loans, and mortgages to corporate debt levels & government.
All these combined levels of debt are massive.
Abroad there are 12 trillion dollars borrowed from foreign corporations. And this money that must be repaid-with cash.
Everyone in the world has dollar-based debts but all have massive declines in dollar cash flows. Foreigners have borrowed record amounts. And the US is reducing the trade deficit. Once the US started the trade wars, there were fewer dollars in the system which meant a slowdown of global trade. And with fewer cashflows to all businesses the weakest creditor will have to give up… or pay up.
And with the continued surge in the US dollar, paying off those debts are going to get harder and harder. We are living in the dollar standard era. No single currency has dominated the world as the dollar has in the last 500 years.
Currently, the dollar is 70% of all trade and currency transactions.
Could this be self-defeating for the US because they lent out so much money and then they cut off cash flow?
It's important to note that the US did not lend this money. This money is whats called the Euro Dollar market. AKA the offshore dollar lending markets where international banks can create Euro Dollars on their books.
The Fed issues Swap lines which is a short term loan and the banks take it and lend it to their best creditors. And when those creditors fail, then the biggest insolvency issues will happen.
Raoul Pal's personal portfolio:
25% for trading opportunities – Long Bonds, Long US Dollar, Long Gold Miners
Shorting $GE (General Electric)-
Why does Raoul have so much invested in Bitcoin?
The dollar standard is going to break the system. It's going to eat itself. Central banks want to move to digital currencies to circumvent the strength of the dollar. The world is moving towards digital currency. Bitcoin acts as digital gold which makes it an extraordinary store of value.
Bitcoin is the poster child for digital currency.
Raoul believes that in five years Bitcoin will be trading at one million dollars per coin. The magnitude of the opportunity in Bitcoin is like nothing ever seen before.
Legacy systems in lending, custody, trusts are outdated relics and have to change. Bitcoin is going to force this change.
The Bitcoin algorithm reduces the supply of bitcoin every few years and the more Bitcoin grows, the more adoption will grow.
No investment has ever performed as well as Bitcoin has in the history of the world.
If Bitcoin is 1 million dollars in 5 years, what happens to the US dollar?
The US dollar won’t go anywhere.
How will this impact the US powerhouse and its global influence?
*The end of the empire
*The US could have a more robust financial system which will make the dollar-based system last longer. The dollar is a very big problem that needs to be solved.
Portfolio allocation and methodology to prepare for a recession
Cash + Income is crucial & the best income you’ve got is yourself. If you can generate a few sources of income you can insulate yourself in good and bad times.
If you could live anywhere where would it be and why?
* The Cayman Islands
Going to a place where you don’t pay as high of taxes. You can be anywhere in the world now. Why not be on a beach in the Cayman Islands or in Singapore when everyone can work remotely.
India is also an enormous opportunity because of its low debt, young people, and good education.
Best book to read for all investors:
The Hard Thing About Hard Things
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