‘I think there are three things you need to do here. One is income. Income rules the world. Income pays your bills. Income can pay your mortgage. Income does everything without income. Income takes hard work. It’s hard to get up the ladder and earn more income.
Secondly is that you need to have optionality. You need to have things that can pay off. A startup or a hobby business on the side can give you optionality because you can build a business and a business has intrinsic value. Plus, it can increase your income. That will never happen if you work for a corporation. Yes, you can have a great career and do fine, but you’ll never have that extra upside that you and I have had by building businesses.
Another thing is to focus on your income. Work hard. Look for other opportunities that can leverage that income and opportunity set that you have, and then Lastly, if I’ve got this income, I should look for investment opportunities. That could change my life.’ – Raoul Pal, a macro investor, was a guest on the Impact Theory podcast, where they discussed a variety of topics, including the death of the American dream, halting the economic explosion, and leverage.
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Analysts aren’t sure if it’s a dead cat or not. Cryptocurrency has been experiencing the same with all of the geopolitical turmoil, high gas prices, and rampant inflation. The economic outlook looks bleak, but many believe that during times of fear and uncertainty, fortunes are made. Raoul went into detail about the three things you need to know to make money in this market and what smart money is doing from his experience:
‘Let’s look at other opportunities. Maybe not everybody likes crypto. Another thing that is patently obvious is that technology is not going away. It’s not easy to pick the right technology stocks, much like. It’s difficult to pick the right NFTs or tokens, unless you really know what you’re doing and or you know that particular company or that project. If the thesis is that technology is going to continue to have this ridiculous adoption, whether it’s AI, EV, robotics, or genetic sciences, all of these things that are around us, like space travel. If it’s being sold in a fire sale because everybody’s panicking, then surely that makes sense because technology has outperformed the market for the last 40 years. So you always want to be buying technology, so if you’re thinking of your 401k, you’re in your 30s, you look at your 401k and you’ve still got your income, because that’s the most important thing in everything. You’ve got your income, you should be going, “I should be buying technology stocks.” I should be buying crypto because these are long-term mega trends.
The investment thesis. I don’t believe so. There are a lot of macro similarities with the past episodes and everybody makes it very dramatic, so there tends to be a lot of doom porn and I’ve been a proponent of that as well. You know, everything looks like the 1929 crash, everything looks like we’re going to go into World War II. Yes, those things happen. But when it looks like, you know, it’s 2001 all over again. Things go on. If you bought tech stocks after the 2001 crash, you’d be very wealthy indeed.
If you think of Jeff Bezos, he launched Amazon bright-eyed and bushy-tailed with his IPO. It exploded in price. It was like, “Oh, amazing online bookseller.” It then falls 96% right. This is exactly what I went through in crypto, exactly the same. Then what happened is, well, unlike most of his investors, he held on. It went up a lot again, but still didn’t make up the difference. It fell another eighty percent before it went up again. It then fell by 60%, and before that, this online bookseller was suddenly worth more than all of the world’s book-selling companies combined. I was still trading at a price-earnings ratio of like 800. Everyone’s like, “This is crazy.” This is a bubble, but what we didn’t realize is that he was building a network for e-commerce and then the computing power that drives it.
Over time, Amazon just did that. These are the things you need to consider because this is where we are in the volatility, and will this survive? Those are the two questions, and if the long-term trend is there, then you should be buying into all of this.
I have my global macro investor roundtable, which is a bunch of my subscribers from my kind of very high-end institutional research service, a bunch of the world’s most famous hedge funds, family offices, asset management firms. We all have this little enclave here in the Cayman Islands with a lot of wine and a lot of discussion and trading ideas and stuff like that, and people are generally very wealthy as real estate developers. The type of wealthy man whose primary source of income is real estate. The hedge fund guys were very concerned about the recession but were looking for an opportunity, and so they were buying, let’s call it bonds, cash, anything to kind of just not be involved in risky assets like stocks and stuff, but they were looking for an opportunity on the other hand, which is what was that opportunity?
That opportunity was technology. Crypto and commodities. Commodities have gone up a lot recently, but we’ve got this. It’s this greening thing that’s going on right. We’re going to green the world. We have the political will to do it, and it’s going to happen faster than the market can take it. That means we under-invest in mining equipment and we over-invest in battery technology, wind farms, and solar farms. The idea is to eventually accelerate this so much that it becomes the adopted technology and electricity becomes cheaper from doing it. The issue is that there’s not enough copper for the electricity we need to generate, so we’re about to go into this enormous copper shortage. You don’t notice it now because the economy is weakening and so fewer people are demanding copper, but once we come through the other side of this, you’re going to have this huge demand for copper. It’s a problem, but it’s part of that green energy transition. That green energy transition also requires a lot of other stuff to build these wind farms. This hydrogen power, you know, whether we go to atomic energy or whatever it is, it’s a whole change in how the world works. It’s very similar to the 1950s when we kind of rebuilt American factories and all of that kind of stuff, so that moment in time means that these guys wanted both commodities and technology because they know this one’s probably kind of a good five or ten year cycle. So the technology cycle is limitless right now.
That’s I guess what most people were thinking, but everyone was very nervous over this next three month period about what would happen to the economy and what could happen to markets. We talked about income plus opportunity. They’ve got the cash, so you know, one of the world’s best technology investors, Co2 I think that’s 70% cash, which is extraordinary because these guys are, you know, aggressive technology investors, 70% cash. There are a whole bunch of people who are What they’re saying is that the future opportunity is going to be big and it’s going to be cheaper than it is today. Now, will they time it properly, well, et cetera, doesn’t really matter, but here’s what the smartest people are saying: the future opportunities are better than the present opportunity. We don’t know when they had that bet. They might have done that four months ago, in which case it’s been a very good bet and they’ve been looking to deploy. If I read their investor letter, they say they’re now starting to look to deploy stuff into interesting opportunities where things are really cheap, which is the thing I said before, when the market throws out the baby with the bath water, that’s when you start finding the things you really like. You know, in the crypto world, things like Solana, great project down 85 percent, there’s a whole bunch of these big L1s with network adoption effects already. These are not super speculative assets that are obviously speculative but not super risky. They’re all down 80% to 87%.’
What do you think of Raoul’s thoughts here? Do you agree with his three things that you need to do during a recession?
[This article is a transcription of a video made by Only The SAVVY]
Original video: https://youtu.be/6PV8iPfnQAw ]