‘And if I look at the global money supply year over year against the year-on-year rate of change of bitcoin, you can see it’s a dominant driving factor of the overall direction. It is not the only factor but a dominant driving factor. The global money supply has been shrinking because everybody’s been tightening. That has reduced the price of bitcoin, so that was the crypto. The arctic was essentially in that chart. The following chart shows that the money supply is cyclical to two and that the ism leads it by nine months. The ISM inverted suggests that the M2 rate of change is going to start rising again.’ – Raoul Pal.
Raoul Pal has identified three conditions that could provide a healthy boost to the crypto markets after months of choppy price action. A former hedge fund manager who retired at 36, Raoul Powell is a co-founder of Real Vision, a financial media company offering in-depth video interviews and research publications from the world’s best investors. He has run a successful global macro hedge fund, co-managed by Goldman Sachs hedge fund sales business and equities and equity derivatives in Europe, and helped design the BBC TB program for million dollar traders, training participants in investment and risk management strategy. Moreover, the Binance exchange has approved Jet-Bot as a crypto trading bot. This is one of the greatest platforms for staking your cryptocurrencies and earning passive income. Jet-Bot can protect your funds. You can connect your Binance account via API keys without having to deposit funds on the platform to start crypto trading.
Raoul retired from managing client money and now lives in the Cayman Islands, from where he manages real vision and rights for the Global Macro Investor, a highly regarded original research service for hedge funds, family offices, sovereign wealth funds, and other elite investors.
In a new interview on the Real Vision YouTube channel, the former Goldman Sachs executive says that the Fed’s tight monetary policies are already priced into the crypto markets. Last month, the Federal Reserve raised interest rates by seven to five basis points. Powell believes that lower commodity prices, lower yields, and a topping out of the US dollar will benefit risk assets, including cryptocurrency.
‘I think the low is close, whether it’s in or not. I can’t tell, but I know from all of my economic work. I’ve probably got maybe 200 charts to back up all the stuff I showed that suggests the balance of probabilities is that a lot of this has been priced, that the inflation problem is probably a thing of the past, and that economic growth is going to fall sharply.’
‘So that basically tells us things like bitcoin and risk assets are cheap, which ties into the Nasdaq being cheap and the exponential growth stocks being relatively cheap. There is a potential big turning point in the markets to come. What I’m waiting for is that turn in bond yields. I believe it is forming a head and shoulders top with 265 in 10 years and 275 in 10 years as the neckline. If it breaks that, then we’re going back below two percent inflation. Break evens are already falling, so we’ve seen them fall sharply.
I’m expecting the oil market to show more liquidation. We saw a big glimpse of that this week when we had some really rough days in oil. I know there are a lot of oil bulls out there, and I understand the longer term picture, and as Dwight Anderson made this clear in his interview, the thing that will pause the longer term picture is demand destruction. Warren talks about it. I think we are going to see more demand destruction in a shorter and sharper period of time. Then maybe oil will stabilize again in the $80 to $100 range, but the rate of change won’t be as high. It won’t keep going up at 100 increments, which means inflation is not as high.
The inflation we get out of this after this recession is going to be much less than people are expecting. People are exaggerating past prices and rates of change instead of current prices. That’s basically my macro view. Maybe a bit more pain to take a really unclear one gush lower, but the thing that will happen is that we need to brace ourselves for the economic impact. People are going to start to become clear to people that it’s true that people don’t yet believe that story. I think it’s going to become very clear what the healing process is like because there are these charts. You’ve shown them.
I just had a conversation with someone today where you have these bear markets and then they rally. Is there something else that happened here now because of the breadth of participants? Or do you know where the digital asset market is that’s going to make this rebound look different? Or would you expect to see prices resume their climb in the way they have traditionally?
I don’t know yet whether we’ve seen the low. I think so and I’ve been averaging it in aggressively, the kind of biggest addition to my crypto bets since 2020, um, into this, but I don’t know where the low is. Could a drop in economic conditions cause further short selling or panic? Possibly. I think the low is close. Whether it’s in or not. I can’t tell, but I know from all of my economic work. I’ve probably got maybe 200 charts to back up all of the stuff I showed that suggests the balance of probabilities is that a lot of this has been priced, that we’ve got the inflation problem is probably a thing of the past and that economic growth is going to fall sharply.
Now what happens when economic growth falls sharply is that we now have this Pavlovian instinct of the market looking forward and saying the Fed is going to pause and monetary conditions are going to ease. Don’t forget that financial conditions index that I showed you the global macro investor as well, that prices in commodities, the dollar and yields. If yields start coming lower, commodities start coming lower and the dollar eventually tops out, which it’s not clear that that’s going to happen yet, but at some point it will, then you’ve got all of those reversing and that tells you that usually that’s when the Fed has started reversing course as well.
Do you think that will benefit those conditions? It will definitely benefit crypto as well as other risky assets.
There is another scenario that is very real and the scenario is that I’m wrong that the 1974 short sharp contraction of the economy and the contraction of markets is not that it’s 2001-2002 or 2008 all over again, in which case you get a false rally that goes on for a period of time. Then it rolls over and has another whole set of lows. Those are the 50% sell-off style scenarios.
I don’t see that in the forward-looking data because I think it looks sharper and shorter than people expect, but that is a possibility. So it’s really hard to call these things, you know, trying to pick lows and stuff. It’s not easy because, you know, many people got carried out in 2002, I remember it really well, and then 911 hit, and then the whole thing rolled over again and destroyed people. So you know, these kinds of markets are not easy to trade. The bond market tends to be the easier trade, but it’s been hard because the inflation store has been so sticky, but when it gets easier, that’s an easier place to make money.
Angela asked where you would put new money if you had it today. You mentioned a couple of the things you’re looking at, but you know what you’re most convicted about?
I’m most convinced of averaging in cryptocurrencies, which I’ve been purchasing, as well as in these growth tech stocks, which are the archetype names. I’ve got a big basket of stuff to reduce the risk in some of this. It’s very risky to buy markets that are down, but they’re down 75-85%.
Technology is not going away, you know the exponential age doesn’t go away, because prices have gone to the bottom of the log rhythmic channel, so you know these are two to three standard deviations oversold. They look very attractive to me, but you need to have a long-term framework. You need to be able to understand that you might still be wrong by 20% or 30%, depending on who knows, and that should not be an issue because the upside is 10 times that. That’s how I think about it in terms of the trade I like the most here and now that is lower volatility, lower risk is the dollar is bonds, so whether it’s TLT or whatever flavor of bonds you like.
While bitcoin and other top cryptocurrencies continue to fail to break out, all eyes of analysts are on the latest US inflation numbers to be released on Wednesday, July 13. Last week, bitcoin surged above $22,000 but failed to continue the momentum. At the time of writing, bitcoin was again just above the $20,000 level. The release of consumer price inflation (CPI) in the US for June 2022 is expected to be released tomorrow. The numbers may indicate whether the hawkish stance adopted by the U.S. Federal Reserve has succeeded or not in slowing the pace of inflation.
Experts say that the U.S. CPI data on July 13th could be the next trendsetter for crypto markets regardless of the current market situation. We strongly believe that the crypto market will surge again. It’s just a matter of time.
[This article is a transcription of a video made by Savvy Finance]
Original video: https://youtu.be/4ORPs5HH5qA]