{ "episodeId": "SLP93", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "raoul_pal": { "name": "Raoul Pal", "role": "guest", "tag": "RAOUL" } }, "segments": [ { "speaker": "stephan", "time": "00:09", "start": 8.73, "text": "Hi and welcome to the Stephan Livera podcast focused on Bitcoin and Austrian economics. Today for episode ninety three, I've got a really special guest. He is Raoul Pal, CEO of Real Vision and of Global Macro Investor. But first, a word from my sponsors. So Kraken, have you looked into them? They're one of the best Bitcoin exchanges going. Over my years in Bitcoin, I've been really impressed with how they operate. They have such a strong focus on security. They have consistently acted ethically in the space as well. They are one of the longest standing Bitcoin exchanges. They bring a really high quality platform with some of the best liquidity. available in this industry. They've got high trading volume and low fees. 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And don't forget if you create an Unchained vault, you also get three free months of access to SafetyNet's Bitcoin- Standard research bulletin. You can also get a Bitcoin collateralized loan, meaning you can get USD without selling your bitcoins, so this might be more tax efficient for you as well, and this is held in collaborative custody. So to learn more about that and sign up, go to the Unchained Capital link in the show notes. This interview with Raoul is a great one. We talk about global macro risk factors that Raoul is speaking about these days, such as the troubled European banks, corporate debt, demographics trends with baby boomers, central banks, and what they're- Potential response will be, and obviously we also talk about Bitcoin and the way Raoul is thinking about it and how many other investors are thinking about it. So I'm sure you guys will really enjoy this interview. Raoul, it's a pleasure to welcome you to the show. Great to be on the show. Thank you. So, Raoul, I, I know you've been, you know, you're a macro thinker, you're CEO of Real Vision, and you've been commenting about some of the problems that the global economy is facing, and also you've been commenting about Bitcoin. But before we get started, maybe just, just tell my listeners a little bit about yourself, what you're doing with Real Vision, and potentially also with Global Macro Investor." }, { "speaker": "raoul_pal", "time": "02:51", "start": 171.2, "text": "Yeah, so, my background's finance and Macro in particular. So, I was, I, I was at Goldman Sachs where I ran the hedge fund sales business and equities, equities derivatives. In fact, I started that business in Europe. I then went across, so there I was talking to the world's most famous hedge fund managers from Stan Druckenmiller to Paul Tudor Jones to Louis Bacon. So I got to learn a lot from the masters of this dark art. And then I decided to leave and join what was the largest hedge fund firm in Europe at the time. GLG Partners, where I started and managed the global macro hedge fund, there. So I did that for a few years. So global macro, for people who don't know, is basically, it's a multi-asset class approach to looking at how the global economy works and looking for the opportunities to invest according to macroeconomic movements, whether that's in, in, GDP growth or inflation or whatever it may be. And so that tends to be across everything from commodities to currency. to stock markets, to bond markets, to credit markets, and literally everything. So it's a very complicated world, but a really fascinating, exciting, unique world. So that's what I did for a long time, and then I opted-- then I decided to opt out of the rat race, and I moved to Spain, where I started writing The Global Macro Investor. so, Global Macro Investor is my kind of institutional research service, which is read by many of the world's largest hedge funds, family offices, sovereign wealth funds it's, so it's a very well-known publication, that space, very expensive publication, but it's very well-known in that space, and I've been, and I still write it now, so that's been going for fourteen or so years. and then a few years ago, about five years ago, I had the crazy idea with a few others to start a, the Netflix of finance, which is basically what Real Vision is, and w-cause we thought that- In two thousand and eight, so many people didn't know what was going on, yet a whole bunch of us did, and I would say, you know, in, in today's parlance, the elites knew and the, the others, the ninety-nine percent didn't have a clue, and I was very uncomfortable why that was. And it's because financial information was really kept amongst the people who could pay the most for it. You know, I've been in that business, and I realized that we could probably democratize it, and video is the way, and creating a on-demand video service It's a subscription-based service where we would interview the most famous people in the world in the investing space to pick their brains long form, like podcasts are now showing the light in terms of how long form is very engaging for people. Well, we thought the same thing. So long interviews, reportage, on-the-ground stuff, deep dives into all sorts of stuff, and people loved it. So that's the other thing that I do is real vision." }, { "speaker": "stephan", "time": "05:46", "start": 345.75, "text": "Fantastic. And I think, yeah, now that we've gotten a little bit of your background, I know you have recently been commenting about some of the global macroeconomic risks that you see. Some of that is ranging on the risks in the troubled European banks, the demographics in terms of who is going to be going through redemptions, also the sort of the tight spot that central banks are placing themselves into. Did you want to just open with some of your thoughts around that?" }, { "speaker": "raoul_pal", "time": "06:15", "start": 375.07, "text": "Yeah, I mean, look, it is a massive topic, so if anybody's interested, I'm not here to necessarily just do a plug, but go to realvision dot com forward slash free. There's our free channel, don't even have to pay for that one, and the-- my whole video for an hour and ten minutes is on it, which goes through at length how I think there is the potential for a recession teeing up. And there is a lot of, you know, global growth has been slow. We have some- Other big influential factors, you know, we've seen, and you'll have felt it in Australia, China being, you know, its economy is slow. Across Southeast Asia, all the economies are slow. Australia's, is pretty slow itself. You know, could it go into recession or not? You know, that's one of the questions everybody's asking. But on a global basis, Europe is also slow and the US is relatively slow and slowing. So we're at risk of going into recession. Now, normally there's one other factor that gets triggered that causes that recession, and the bond markets been screaming it for a long time as yields have been falling. I mean, Australian yields are record lows, European yields are record lows, US li-yields aren't there yet, but many places around the world are record low bond yields and interest rates. And really what they're screaming is that the trade tariffs and that deglobalization that is being brought out of Trump and is now gaining traction is a really big deal. And it's a big deal because it changes the structure of world trade, it puts tariffs on things, and it forces multinational corporations to try and change their supply chains. So if you are a, if you're Apple and you buy your phone parts from China and the US is making it damn difficult for you to buy those phone parts from China, you're gonna have to figure out where to buy them from. Well, problem is nobody else makes them. So you're gonna have to go and help somebody set up a factory in a different country. So you choose Vietnam. Well, Trump just stopped the Vietnam one too by saying, \"Well, I'm gonna put tariffs on that.\" So then you're like, \"Oh, shit, should it be Mexico? You know, have He's still having war with Mexico, and he's also started making noises about India, and he's making noises about Europe. So as a corporation, what you're gonna do is generally stop doing anything because it's, and, and bring in some con- consultants and spend some time thinking about how do you restructure your whole business. So that could be a very large global growth shock in the making, and I think it is. and so- While that's going on, global growth and global inflation has been plummeting. So bond yields in Europe have gone super negative. And guess what? The banks are freaking out because banks really make money by lending money. Well, if interest rates are negative, well, that's the end of your banking system. Now they've already got a ton of debts themselves, so they have debts upon debts that haven't been resolved And their share prices are plummeting. So today, the Spanish banks started hitting all-time lows. Banco Sabadell, I think BBVA, as I call it, falling off the clip of death, and this is a big bank, BBVA. Bank Inter, which was partly supported by the state, is looking, Bankia is looking troublesome as well. So we've got the Spanish banks, the Italian banks, and the German banks, probably the Swiss banks, and then just behind them, the French banks, all looking terrible. And How is Europe gonna resolve that? Meanwhile, the Europ-European economy is slow, so what is the answer? Cut rates. Well, if you cut rates even further, you'll make it even worse for the banks. So you're creating a death spiral. So in which case, interestingly enough, the ECB tried to appoint or will appoint Christine Lagarde, who's the head of the IMF, whose job has been to negotiate bailouts. She's a lawyer and a politician. So if you're thinking about where does Europe go from here, it probably has to go to a bank bailout that has to be dealt with Europe wide. It has to be some sort of- Monetary, have fiscal stimulus that has to be negotiated at a political level across Europe. The Germans don't want to spend money, but they have to. You need to break all the Maastricht treaties about how much money you can spend, so that needs to be negotiated. I mean, there's a big job to be done, and if that can get done in a time, well, in enough time for the banking system to remain solvent. So there's some huge problems going on around the world. You know, China itself has enormous debts, it has a broken financial system, it doesn't really And stimulate Australia and the US economy all over again, because it would rather spend the money on its own trying to defend its banking system and it's struggling with not letting its currency collapse. So We've got a whole load of stuff going on right now in the global economy." }, { "speaker": "stephan", "time": "11:04", "start": 663.88, "text": "Right, and I think you take this view as well of it being a cyclical nature, and I think many people do do that, of having these broad sort of mega or larger cycles and then smaller cycles within that. And as individuals or i-institutions, we have to try to adapt to what's, what's going on around us. And one of the challenges then is you might try to act in a certain way, but- Then let's say it's-- there's always that variable of what will the central bank do, what will the regulator do, what will the politicians do. So how do you think about that sort of thing if you were to take a certain action to invest in a certain way, but then let's say the central bank might try to juice things up again with lower rates?" }, { "speaker": "raoul_pal", "time": "11:47", "start": 707.45, "text": "I think the business cycle trumps all If I go back, the business cycle has been going on hundreds of years. Now it may change in its frequency, so now we get less cycles 'cause of central bank management, so it tends to be smoother, less volatility. if you go back to pre the 1960s, it was lots of violent business cycles. So yes, it's dampened volatility, but they can't not erode it. The business cycle doesn't go away, and in fact, what the volatility suppression of the business cycle has created is a risk of hyper-volatility in due course because you allow imbalances to build up. So the point, of a business cycle really is that it clears out the imbalances too much. Borrowing, and Australia was a classic example of an economy that went too long without a recession. So what you ended up was a gigantic housing bubble, and you also had a gigantic mining bubble. So both of which- have to unwind and they take time and they're painful, and if you're not careful, you can lose your banking system in the middle of that. So I think you should base your investments based on Where we are in the cycle, understanding that it may take longer, but over time the cycle still works. You know, you can show a graph of GDP to a child and they'll say, \"Well, it goes up and down.\" Show it to an economist and they'll, they'll write you a linear formula, which is the bizarre thing. You know, economists just say, \"Well, you know, they, they never forecast recessions.\" I'm like, \"Are you kidding me? It obviously comes up and down every five to ten years, so why would you not forecast that?\" But they" }, { "speaker": "stephan", "time": "13:29", "start": 808.82, "text": "Because I think perhaps that's a slight difference in the worldviews depending which economic school of thought. So I tend to, on this podcast, I come from a more Austrian school of thought, and part of our view on that is that the business cycle is a creation of the central banks and is driven by that expansion of credit. But I suppose that's getting to what is the root cause of the cycle?" }, { "speaker": "raoul_pal", "time": "13:54", "start": 834.07, "text": "Yes, and I think it pre-existed central banks, because, you know, when the- We just had gold standards, there's other lending cycles, it is a credit cycle, but before that, it was the commodity cycle, right? It was the crop cycle. So there's elements of the business cycle even in Egyptian times, and that was the flooding cycle of the Nile. Because that gave crops, so you had boom bust. So then, you know, there was years when the farmers had, you know, it was the seven years of famine, seven years of, yeah, it's all, it's business cycle driven by a number of factors. Now, the factors change over time, but I think credit, as you rightly say, whether it's the central banks or just private sector credit I-is the pre-predominant driver these days of the business cycle." }, { "speaker": "stephan", "time": "14:35", "start": 875.23, "text": "Fantastic, yeah, I, I think that is definitely the Austrian, aligned with the Austrian answer that even absent the central bank, if there was an expansion of credit beyond the amount voluntarily saved, that was what drove this, what we call mal-investment into, you know, these sort of colloquially the bubbles of, you know, that we've seen. But Raoul, I'm also really keen to talk about Bitcoin, because, you mentioned it in, your recent thread, and actually Interviewed a few people, I was doing some research on Real Vision. You've interviewed a few Bitcoin experts as well. Can you give us some of your thoughts around your own personal Bitcoin journey, how you came to learn about it, and how you're thinking about it these days? So go" }, { "speaker": "raoul_pal", "time": "15:15", "start": 914.98, "text": "back to the cycles. The cycle is there's a debt supercycle. The debt supercycle is in the, in Austrian terms, Kondratiev winter. So what we are is we are in the final stages of the debt supercycle. We've seen the rolling blow ups both, it started with the kind of tech and equity bust in two thousand, it rolled into the housing Financial, you know, the banking system, and I think it's probably got the corporate debt market to do, so it's been a rolling bust as we roll through trying to unwind and unlever some of this, and that is typical of the latter stages of a big debt bust. I think the large major one we had was obviously the 1920s. So this is a secular cycle. So in secular cycles, what you're looking for is what is the outcome that changes it coming out of it, and when I first- discovered Bitcoin because some of my clients had begun to mine it when it was at seventeen cents. They were running a hedge fund and they happened to have electricity included in their office space. and somebody talked to them, they were, very, very early adopters. They're now both quite famous in the, in the, in the crypto space, but they, and the, blockchain space, but they started mining it in their offices and making money. And they, I mean, held it all the way through to the big rally. So I mean, these guys made an extraordinary amount of money out of the thing, but they became my guiding guides to this. So I started seeing- Seeing it and thinking about it, and then I realized very quickly how my first understanding was digital gold." }, { "speaker": "raoul_pal", "time": "17:06", "start": 1025.75, "text": "I now think that is just one of the nuances of it Whether it's Bitcoin and the whole space, it's just a small part of what the whole space is actually becoming. It's becoming a much, much larger thing than I think most people can get their heads around right now. So I- Wrote an article, I got long, around two hundred dollars. I wrote an article in, I'm guessing, two thousand thirteen. which was, I, I, I think I was probably the first person to put together a valuation using the above ground supply and below ground supply of gold and imputing that into Bitcoin, which is basically the stock flow model at a very simplistic level. And I came up with a valuation of Bitcoin, if it was a gold equivalent, would be worth a million dollars, with gold roughly at the same price as it is today. So that went around Silicon Valley very quickly and around finance very quickly, and because it became the first time anybody really kind of put a macro framework around Bitcoin. and I was using technical analysis as well, and I was relatively early in that game. so I then started talking about it, well, we launched Real Vision in 2014, we talked about it then as being an alternative to the financial system and blockchain and Bitcoin itself being some sort of future or part of a future of finance that didn't involve, that, that had a trusted ownership of assets. You know, this is a key thing that kind of, this, both the smart contracts, but also the blockchain and the ability to custody all assets. You know, having gone through Lehman and MF Global and a whole bunch of other stuff, and nobody knows what collateral is whose, who owns what, is a huge problem in this world. You know, look at Deutsche Bank right now, they've got forty-five trillion dollars of derivatives on their books, forty-five trillion with a T. And they potentially are gonna go under." }, { "speaker": "raoul_pal", "time": "19:03", "start": 1143.23, "text": "okay, a lot of this is all netted off, but who the hell owns what and whose collateral is whose and how many times it's been rehypothecated, nobody knows. So this is the kind of issue that I thought it was to solve first, because I've been very involved in the plumbing of the financial system and understanding how close to failure it got back in, Back in actually 2012, when Europe almost defaulted, you know, the various European states, and the world's collateral was about to go under. So I realized that, and so that got me on the journey of understanding, and I, I wrote it, and I sold out, I don't know, far too early at about two thousand or so, and then I kept out of the space. We, we did some stuff on, and I monitored it 'cause I didn't understand the forks, and I thought the forks were dilutive, but I think the forks in Script issue or a dividend or it wasn't clear what it was in the end, but it wasn't dilutive. I mean, what was incredible is how robust Bitcoin was in that process. And what was also interesting in this journey is a lot of people I really respect out of my macro space had moved across, and not just to Bitcoin, but to the entire space. So whether it was Dan Moher at Pantera, whether it was Novo, Mike Novogratz at Galaxy, whether it's John Burbank from Passport, and m-most frequently, frequently there's an interview today on Real Vision with Dan Tapiero, who's a, another famous macro guy. he's now completely in this space as well. And they were all over the space because they were applying kind of macro thinking, big picture frameworks, and that kind of future philosophy that you have to apply to macro thinking and probabilistic outcomes to this and seeing, okay, the probabilities are even Even with a small probability, the risk reward is so enormous that this is the best opportunity in the world, in the whole space. So, so then I got back into the space again as I started talking actually to Dan Tapiero, where I started to realize that The whole space was moving bigger now, and the digitization of everything was the play, and Bitcoin was part of this. The other cryptocurrencies, the tokens, are all small parts of a much, much bigger picture, which is kind of- The value of anything digital and everything having a digital value. So that, that's, I think, where it's going, which is quite a big topic." }, { "speaker": "stephan", "time": "21:28", "start": 1287.98, "text": "Yeah, that's fascinating. And so with- Bitcoin then, I'm unsure of whether you've read, one of my friends, Saf Dean Nemos, has b-written one of the books called The Bitcoin Standard, and I'm unsure whether you've, you're familiar with that way of conceiving of Bitcoin. No. No, okay, so it's essentially around this idea that, you know, Bitcoin is the hardest money, Bitcoin is the best money, and that we, over history, we would expect there to be a sort of convergence towards the most saleable or most marketable money, and historically, as Saftein points out, it, it tended to be that with the highest stock to flow ratio. And so that was part of, some of our, you know, some of us, those of us who are Bitcoiners and bu- bullish, obviously, we think of it like that. And so as you said, it's, it's like making a probabilistic bet, and I think that's, that's potentially, something that many people don't really think about, because they, they think, \"Oh, I don't wanna be wrong.\" but instead, if you're thinking like a poker player, it might be like, \"Hey, I'm calling a small amount to potentially win a big amount.\" And so we view Bitcoin like that, like it's an asymmetric bet." }, { "speaker": "raoul_pal", "time": "22:37", "start": 1356.92, "text": "Yeah, it's an option, and okay, it's less of an option than You know, stuff like that, you can see the comparative upside, and, you know, if you try and get your head around the digitalization of everything, if you try and get your head around the, an alternative financial system, even if it has a low probability, right? If you, if you recreate a low probability of, let's say, what's global money supply and global debt, you know, it's something like, I don't know, call it eighty trillion dollars or something. Okay, so if, if it's worth eighty trillion dollars, let's say you have a ten percent probability, that's eight trillion dollars. It's currently worth two hundred billion dollars. So even if there's a one percent chance of working, you know, that's how probabilistic frameworks work, and what it's telling you is it's ludicrously underpriced if any of these probabilities play out. So that's how, how crazy attractive it is. And that's why it's sucking in so many of these macro guys, 'cause they're like, \"Damn, nothing else has this payoff.\" And they're used to trading in options, right? Options is what they do, binary outcomes is what they look for, asymmetric bets is how you make a career. So they're looking at the asymmetry is embedded in the space, and they're like, \"Okay, this is super interesting.\"" }, { "speaker": "stephan", "time": "23:55", "start": 1435.1, "text": "Right. And then what does it take for more of the- Macro fund investors to come be-running in and being drawn into Bitcoin, is it just a time factor? Is it that we're already seeing that now?" }, { "speaker": "raoul_pal", "time": "24:09", "start": 1448.67, "text": "I don't know anybody who isn't in it, but they're not in it as a fund, because that's still difficult. So you need the ability to have it as an asset within your fund. So many people will use the digital currency, you know, the trust the Bitcoin Trust. So some people use that, but problem is it trades at a huge premium, so you feel a bit of a dick by doing that, so you need to be careful. So people are waiting for the custody and ownership ability, so the futures contract, the new future contract that's fungible that's gonna help. So when that comes There's a number of things. So it is in the space, but almost all of them personally are in it. I mean, I know all these macro guys, they're all in it. They get it. They get the optionality. They may be complete believers, part believers, partial believers, but even then, because if, if it's a one percent chance of being right And the upside is a hundred x from here, you'd do this all day." }, { "speaker": "stephan", "time": "25:02", "start": 1502.18, "text": "Yeah, that's, that's the fascinating part to us, and I think many of us Bitcoiners also would suggest, and another thought here is that over time, what's happened is we have low quality money because of fiat money, right? It continually is being inflated, it's going down in value, and so we believe that there are other assets that are being used as a store of value in some sense, so, you know, Vancouver real estate or- Or Sydney premium real estate or New York or London and so on. And one argument that I've seen put forward by Bitcoiners, and I agree with this view, is that some of that, premium, if you will, will come out of some of these other assets and into Bitcoin. And so in that sense, the actual total markup of Bitcoin may be much, much greater than just even that eighty or ninety trillion. Yeah, I think, I, I-" }, { "speaker": "raoul_pal", "time": "25:49", "start": 1549.36, "text": "The gold people have the opposite view, you know, everybody has a s-some skin in that game, and my view is I don't care because I think there's room for them all. And, you know Real estate, a real estate will get tokenized anyway, and you can have a fractional ownership of a building you couldn't ever afford. So all, everything I think is going to change. So I think even talking about the world in the constructs of which we understand, I know this sounds now gonna sound slightly ludicrous, but I think the constructs of what we understand, if Blockchain, digitization, tokenization, and crypto all move in the same direction together where they're going. Then the chances of our understanding of what is a corporation, what is a share, what is equity? What is, what is, bond? What is debt? I think changes. and what I mean by that is, right now, I mean, corporations were established, I don't know, five or six hundred years ago, so you-- so in legal terms, they had the same legal rights as an individual, which meant you could s-- you could sue a corporation or the c-- or a corporation could sue you. So that gave it a legal construct. Now, in a tokenized world, that's not gonna happen because you can't sue a distributed ledger. So this is a problem. But it's not a problem 'cause it's also, it's also, let's say you're an oil company, why do you need to have shares in an oil company? Why not tokenize all the different revenue streams of the oil company and have them separate? Assets, so it doesn't have to be a company, it can be a fractional asset pool. So once you start understanding the fractionalization and digital ownership of everything, it changes the entire financial system. So they're already doing it with real estate, you know, it's just started tokenizing real estate, but sooner or later, you and I could- Could own a share of the Four Seasons Hotel in Sydney, which we couldn't ordinarily afford, but now we can, because it can be fractionalized down by tokens, and we would have approval ownership of stuff. So there's a whole host of things because you then start to be able to tokenize humans as well, in terms of I could tokenize your future as much as I could tokenize the future of your podcast. I could tokenize your future income stream or your functionality. There's a number of things that can be done. And what becomes interesting is think of a financial world where you can actually- To trade human skill sets. So, you know, you could gather together a basket of engineering skill sets and short a basket of, you know, of, another, you know, another thing that you don't think is as valuable, hedge fund managers, let's say. You could short hedge fund managers, buy engineers, and trade that spread on future income streams because You can do that, 'cause essentially we're already doing with sports people. So once you tokenize this, then you and I can invest in anything. It is a, really a ludicrous change that's coming. So, so I don't buy into the argument of- One's replacing the other, I think the whole thing is about to change." }, { "speaker": "stephan", "time": "28:47", "start": 1727.11, "text": "Yeah, that's, that's quite a lot there, but I think one thing that jumps out to me is and I accept that my view might be a little bit different, but my view is that some of these tokenization, some of the crypto tokenization projects, I think people might be taking a false hope in some of them and thinking, \"Oh, I could get rich by buying this tokenized thing,\" but really, my question would be, where is the value going to accrue? Will it accrue to the token holder or to the asset holder?" }, { "speaker": "raoul_pal", "time": "29:19", "start": 1758.55, "text": "it depends what the token is, right? So utility tokens and stuff like that is a different world. There's the securitized token offering where you're actually buying a physical part. They're all different, and again, you know, we've gone through a whole bunch of scams with the tokenized offerings. You know, what are you buying into? I'm actually talking about the fractional ownership of assets, so I would call it a securitized token offering, which, you know, is just still in its nascent phase, and maybe that's not the final solution either. You know, I don't think the final set of everything is here. I think it's all, you know, That we'll see what develops over the next, you know, five to ten years is, yeah, I think it's gonna be an enormous change." }, { "speaker": "stephan", "time": "29:59", "start": 1799.3, "text": "Right. Yeah. I think ultimately out of the, you know, cryptocurrencies, really in my view, it's only Bitcoin and there may be other tokens, but they're not money, right? They're trying to be something different. They're trying to be either equity or something in between." }, { "speaker": "raoul_pal", "time": "30:13", "start": 1813.23, "text": "And Bitcoin isn't money either. Bitcoin is, whatever it is, it's probably more of a store of value because it trades, you know, that Plan B thing Think about what he's showing you, it's showing you it trades as a rare asset, so in which case by definition it's more of a, it's more of a store of value" }, { "speaker": "raoul_pal", "time": "30:35", "start": 1835.2, "text": "a, an investment asset than it is money itself. What I thought was ultra interesting was the Libra project. Regardless of whether Libra happens or not, I'm not interested in that. What I'm interested in is the construct, and it wasn't a cryptocurrency per se, but the construct of that basket of all the world's currencies, including dollars, but then you've got a super- a kind of a super stable coin, which only rises and falls by kind of global money supply, and recalibrates all world trade and its private sector So I thought that was a very interesting thing. So would that be money? Yeah, that's probably more, has more munniness than Bitcoin does, depending what platform you use to transact on it, we don't know that either. So money is an exchange of value and a store, you know, it has to be- it has to be accepted, it has to have a store of value, it has to be exchangeable. Well, those three things with cryptocurrencies can all be split out to different assets, and that's what's so clever about crypto is nothing has to be one. and that's really interesting, 'cause we've never had that before." }, { "speaker": "stephan", "time": "31:42", "start": 1902.16, "text": "Okay, so my view there is, let me just present a couple ideas. So a couple things there, I think you can't-- we can't so easily separate the store of value, medium of exchange, and so on. I think the other way I would contend with that is really we should view it like stages, right? Ultimately, you know, I view it from money is the most saleable- you know, good. And it doesn't really make sense to have like a store of value money and a medium exchange money. Really, it would just be one money that you're transacting. And the way I would answer around why people don't spend Bitcoin now, it's because there's a massive potential upside, so nobody wants to sell right now. And so my view is it's, it's more like stages of evolution. And if you look at some of the, some Bitcoin advocates, this is the view that they will advocate. They'll say something like it would start as a collectible to speak, then a medium of exchange, and then a unit of account. What's your view there?" }, { "speaker": "raoul_pal", "time": "32:37", "start": 1956.57, "text": "I think that's dead right. The problem is, is what operate, what, what grows up in parallel alongside it, because that takes time, right? Because basically, the answer is, you'll know that when the last coin is mined. So, and that's not, you know, super far away. But then, what does the world look like and what is its value? Is it the hundred trillion dollars? You know, what, what, what is it? We don't know. but what I know is that's far enough in the future, and there's so much money at stake that a lot of smart people will try and solve it in different ways too. And, you know, what I've been very interested in is the, the, the project in India with Aadhaar and the, digital payment system or blockchain or crypto, and they solve payments, you know, they have an unprecedented amount of payments going through on this new platform, which is super interesting, and how they've also put together India Stack with people's KY, KYC and also their medical records and a whole bunch of stuff, which is basically like a smart contract but solved in a different way. It's very interesting. So I, I think we need to be careful to just think, you know, blockchain is the answer to everything and, and Bitcoin is the answer to everything. There is, the space itself is enormous. And, and some things are better and some things are worse, but even being better doesn't necessarily, make it the most successful. It's kind of, you know, we'll see what adoption is like, the network effect." }, { "speaker": "stephan", "time": "34:03", "start": 2042.63, "text": "Yeah, that's, look, I think for me personally, I am a bit of a blockchain skeptic and a Bitcoin bull, right? So I think there aren't many examples where people use blockchain technology more for the hype than for the reality of what it will enable in a profitable way. In many cases, it's an inefficient data structure. But, look, I'm also interested, Raoul, to just discuss a little bit around, you know, Plan B's work. What was it that got you interested in that? And do you view it then like this kind of digital- Commodity? Is that how you're viewing Bitcoin?" }, { "speaker": "raoul_pal", "time": "34:35", "start": 2075.15, "text": "No. I'm not trying to view Bitcoin as anything but Bitcoin because I'm trying not to anchor myself. It's really hard 'cause we're all anchoring ourselves on something we know and understand. But what I, I saw his work and I was blown away because he'd basically proved out what I'd written about in 2013 about there is a comparable value and of which Bitcoin trades below where it should be in fair value terms versus where gold is. But Plan B's work was really in depth and mathem-- mathematically much more advanced than I could ever even conceive of. And what he did is he solved the valuation of gold in the same equation. 'Cause by putting all assets in, and then it's interesting, because what for me makes an asset, and I've argued this about Bitcoin, I said it's not trading like an asset yet, is because it has to have a relative valuation. So if I look at gold versus real estate, gold versus the stock market, oil versus real estate Oil versus the stock, they all have relative valuations and they trade in wide bands. The only one that hasn't traded in that band particularly well has been agriculture, that used to trade in a band, but technological changes to, to, to crop yield has significantly changed the outcome for agriculture. So prices of, of, of crop produce has been falling, but all the others still trade in the same bands they've always traded at, and basically even- Even arguably, wheat trades roughly in a band with, with, gold over a long enough time period. So, so that's what I was looking at with asset, and he basically proved that out and showed how Bitcoin fits in perfectly in a model of assets, but it's still trading at a discount to where it should be. And then you look at the stock flow and you see where it's going, and it gave gold the relative value versus silver versus copper. versus diamonds, versus Bitcoin, and suddenly you've got a framework. Now, it doesn't have to be perfect, and I don't expect it to be perfect, but it gives you a very good hypothesis from which to work from that it is a rare asset. That's it, that's all you need to know. So a rare asset, it has utility, but it doesn't trade like a utility asset. Ethereum trades like a utility asset, which is more like silver or copper it trades more like gold, so people are perceiving it, as you said, they don't wanna sell it. And most people don't sell gold if they can not, if they don't have to. Sure, there's speculators in the space, but most people buy and hold for the same reason of- You know, the, the future value of it, or it's a hedge against that. So I thought that was what was super interesting about it, 'cause it kind of made sense of what it was, and it made clear to me That hasn't got, hasn't even started its journey if it continues to do what it's doing. Now, obviously that could change, maybe it loses its store of value ness. I don't see how. I thought the forks might have been the one thing that could have done it? And it didn't." }, { "speaker": "stephan", "time": "37:43", "start": 2263.25, "text": "Yeah, let's go into that. So I'm curious, what was your thinking around the forks then, and what's your thinking around the forks now? Do you believe that they're just-- that they are immaterial and they're mostly irrelevant nowadays, or what's the" }, { "speaker": "raoul_pal", "time": "37:54", "start": 2274.07, "text": "thinking? Yeah, I think so. And I think the space is big enough that even if a few forks work in some way, they don't really take away from Bitcoin. I think what the, the network effect has just basically backed Bitcoin, and, you know, and Ethereum is going to be backed For a while now, who knows where the hell it is in the future, but that seems to be the case. People have just gone, \"Look, I don't care about Bitcoin Cash, I don't care about any of this stuff.\" That may go up and down, may do its own thing, but it's not going to dilute the value of Bitcoin. I was really worried that it would be s-perceived to be an inflation You know, a dilution, and then you've got Fiat Coin. That's what I was thinking is like, 'cause you can basically recreate the same blockchain with exactly the same attributes, so you've got Bitcoin too. But what was interesting is the market chose not to back those. They had a go at them and then gave up. So that's good, and that was an incredibly powerful statement for Bitcoin, 'cause that could have been the death of the project." }, { "speaker": "stephan", "time": "38:58", "start": 2337.68, "text": "Yeah, it's interesting you say that. I think, that was prior to the forks going on, there was a lot of speculation. People in Bitcoin were unsure whether these forks would succeed or not, and some people were more like, \"I don't want this fork to win, because if it does, the whole project is over, so I don't wanna be involved anyway.\" So then, when a futures market or some kind of market that they could sell the tokens in advance came, they were trying to sell that other token that they didn't believe in or that they didn't think would have the plan, and I, I suppose that's where we've ended up with Bitcoin today, with its level of liquidity, its level of users, developers, merchants, and so on. I'm also interested to discuss some of the things that I believe Bitcoin helps enable, even if people today don't necessarily want to spend it like a day-to-day currency, we can see that people can use it to spend where they have been censored or where they have no access to, say, PayPal or credit cards. And I think the relevance here as well is coming is that in our modern world, we have things like the war on cash, we have negative interest rates. Do you see those as potential factors that may, again, push people towards Bitcoin?" }, { "speaker": "raoul_pal", "time": "40:07", "start": 2406.89, "text": "I think only as a store of value. I think it's useless, useless in its current format of volatility as a payments method. And we accepted it as our business at Real Vision for a while. And it, it was ridicul- it's ridiculous. I, something that goes up twenty percent a day, you can't run a business forecasting cash flows and revenues on it. So as a payment system It's utterly useless until it gets into the mature phase. Now, I don't know where that mature phase is, 'cause if Plan B is right, it's a long way from here, right? So in which case, it-- somebody's gonna develop something else in the interim. Doesn't mean that Bitcoin won't be used as that in due course, it'll be another system, but right now with this kind of volatility, it just doesn't make sense. So If you're forced to, of course. It's great, you can use it. You know, if you're trying to get money out of Venezuela, you know, absolutely works fine, nothing wrong with it, but it isn't, it's not consistent with a- regular payment system yet." }, { "speaker": "stephan", "time": "41:08", "start": 2468.23, "text": "Yeah, no, I think that's, that probably mirrors the view of many Bitcoiners themselves. They view it like this is a stage process and it's, it's contingent on upper layers happening and also a certain process of monetary, that monetary phase occurring. Yeah, so look, I think it's, it's a really interesting space. I think the other question I was really keen to discuss with you is whether people-- so let's say we start seeing a recession occur, you know, as you spelled out in your videos, you got, I think, the three phases, and will people then- Start selling off Bitcoin, those Bitcoin investors, because they need to pay off bills or will they keep it?" }, { "speaker": "raoul_pal", "time": "41:47", "start": 2506.97, "text": "There'll be some marginal selling. But you see what people look at is, well, people sold gold last time around. So gold has a different role currently, and it will happen to Bitcoin in due course, but it's not there yet. Gold is collateral. So when you see people selling gold, it's because Collateral is being liquidated against bad debts. Bitcoin isn't collateral. So yes, it may be your own personal collateral. So I, sh- you know, I'm gonna miss my house payments, I'm gonna sell some of my Bitcoin. Sure. But it doesn't have that institutional selling that gold can have in environments. So, you know, so I don't think it'll get sold much. I think that there are a lot of bigger players who will look at, as we start moving towards what I refer to as the end game, which is, I think, will probably start with Japan having to monetize all of its debt and maybe try a debt jubilee in the next recession. Once people start seeing that probability coming, I think, you know, both gold and Bitcoin explode because there are larger forces at hand that would- That understand the risks to the system. Now, I don't think it's the banking system per se that has the risk, but it's the risk to fiat, I think, is a bigger issue. And of course, I'm a huge dollar bull, so, you know, there's a lot of phases before, before we get to that. But somewhere within this, see, Bitcoin, like gold, has an embedded option in it, which is that if you do need security in an alternative financial system, one is a backward-looking alternative financial system that's worked very well in the past, which is gold, the others are forward-looking financial system that's yet untested, which is Bitcoin. What is the future value of either of those in that environment? We don't know, but it's a lot higher. That whole recession scenario is extremely positive over time. It will not Be the pure safe haven, 'cause it's not correlated with that. It's just not correlated with risk on, risk off flows, because it's correlated really by that stock flow model plus human behavior, you know, the boom bust cycle of, of, of human behavior. But really the stock flow seems to be the predominant driver for the time being. But I think that it does work over time as a, as a, as a store, as a safety." }, { "speaker": "stephan", "time": "44:12", "start": 2652.26, "text": "Let's talk a little bit about, you know, the demographics involved with what's happening now. It's- Also, you know, we've seen this big, big bull market in equities. Is it your view that as certain generations, you know, say the Boomer generation and so on, are going to be going through more of a redemption cycle, do you ha- but then how do you view that in terms of what's gonna happen for the equity market and the bond market over this next period?" }, { "speaker": "raoul_pal", "time": "44:41", "start": 2681.25, "text": "The oldest generation and the largest generation on Earth is the baby boomers, in the Western world, is the baby boomers. as opposed to in the space around, the Indian Ocean stuff is actually the twenty-year-olds right now. But, but that, that, the richest generation on Earth, all the assets are held by a bunch of sixty-five-year-olds, whether it's Australia, whether it's England, whether it's Germany, whether it's the US. Some countries are older, Japan are in their seventies, like seventy-five. 80, the Europeans are probably in their 70s and the US are in their 60s. So those people have to divest themselves of assets, but most of them have held on to the riskiest of assets because they didn't have enough savings. So they didn't have the magic number they wanted to retire on. So they've taken risk and they've taken credit risk and they've taken equity risk in obscene amounts. And they've gone, you know, the pension systems gone out of the curve even further, and it got into hedge funds and private equity and venture capital further and further and further out the risk curve to get these guys the money that they thought that they deserved. They're not gonna get that money. And once they realize it, once the next recession comes, the party stops because you're 65 years old, you've retired, you can't buy the dip, you don't have a salary to buy the dip with, so you're gonna panic to try and protect as much of those assets as you can, and you'll be out. And you'll be owning bonds, and you'll just be out, and whatever pile you're left with is what you're left with. But a lot of people are gonna lose a lot of money in this. So it's The millennial generation, well, if they were to buy equities at this point, they're the most expensive they've ever been in all history, roughly. If they buy bonds, they get virtually no yields If they buy real estate, well, it's unaffordable. But even if they could, it's almost at all-time record highs. So what the hell does a millennial do? To save for your future when almost all assets have negative imputed returns for the next twenty years, ten years? And the answer is, well, one, you take the optionality of cryptocurrency and Bitcoin, because nothing else gives you that risk-reward pro-profile where you can be wrong, but you do it early on, you've still got plenty of time to accumulate wealth in other assets too. But if it pays off, it'll pay off so spectacularly that everything will be right. It's basically like being given a better chance. Than the baby boomers got when they could buy equities in 1982 and bonds in 1982, right? That was a gift. That's why they're the richest generation there's ever been, they were given a gift. Equities were trading at a PE of seven in the US and bond yields were at 15% in the US. They basically didn't have to do anything but buy bonds, buy equities, and go to the beach." }, { "speaker": "stephan", "time": "47:40", "start": 2859.54, "text": "Yeah." }, { "speaker": "raoul_pal", "time": "47:40", "start": 2860.42, "text": "The same opportunity is potentially being given to the millennial generation with some of, with, with both Bitcoin and other aspects of this space. so people don't realize it yet, but it is probably the opportunity. So that's how I think about this. I think there's a tremendous amount of selling that has to come out of the baby boomers in assets that don't attract The millennial population yet, and to do so, they'd have to be at a much cheaper price. you know, 'cause nobody can afford real estate. You know, a thirty-year-old in New York City, I was talking to some of the guys who work for Real Vision, I was like, \"Well, how much is a-- average?\" Two bed, eight hundred square foot, you know, eighty square meter apartment. So small two bedder city apartment, you know, that's like the benchmark trading asset of the world. And, New York City, Manhattan was like one point three million US and outskirts of Queens, six hundred. I mean And the average millennial at thirty years old is probably earning, you know, working New York City in a kind of semi-professional business, sixty grand. So with ten x to buy in the shittiest place, there is no way, there's no way that they can afford it. So it's fascinating." }, { "speaker": "stephan", "time": "49:04", "start": 2943.66, "text": "Yeah, it's just been bid up to this crazy high level, and what's-- you know, that is many millennials' angst. They feel that they have to borrow from their parents or that they have to go into debt to their eyeballs, and the debt problem isn't just on individuals as well. I think you've also rightly pointed out that there is a lot of corporate debt that we must consider as well, and what's the impact for businesses when they have-- they're operating at these crazy debt- ratio levels." }, { "speaker": "raoul_pal", "time": "49:34", "start": 2973.66, "text": "Exactly right. it's a huge problem. And, and look, there is gonna have to be a huge transfer of wealth from the baby boomers to the millennials. You know, I'm not entirely sure That by the end of it, we won't revert back to two generations living together or three generations. Because it does work, right? It works in Spain, it works in India, it works in the Middle East, it works in a load of places. We just from the 1960s stopped it in most of the West. But, you know, if you put people together again, it actually works. So maybe that's the big learning lesson out of this thing is, is that there's just you just individuals can't generate enough wealth to create their own pension without The kind of, you know, without having grandparents and whatever kids within the mix." }, { "speaker": "stephan", "time": "50:18", "start": 3018.24, "text": "Yeah, that's also an interesting one around this question of can a family sustain it on a single income versus the double income family, which is also the-" }, { "speaker": "raoul_pal", "time": "50:28", "start": 3027.77, "text": "But even now the price, but the price for double income families, and they still can't afford them 'cause so there's two millennials, both earning sixty grand a year, so they get a hundred twenty grand, six hundred grand for the property, it's still, you know, five x their income. It's just not doable. And you have to- You're gonna put down, you know, you're gonna have to put down a hundred grand worth of deposit in that somehow. So w-where does that come from? You can't magically get off the trees, 'cause you try living in New York City and, and saving money is almost impossible." }, { "speaker": "stephan", "time": "50:55", "start": 3054.94, "text": "Yeah, so then the question then is, yeah, what, what do they do about it? And typically they may just decide, \"Well, I'm just gonna rent, I'm just not gonna try to buy, and I'll just try to make, make, make things work just from that and not go any further.\"" }, { "speaker": "raoul_pal", "time": "51:11", "start": 3070.74, "text": "I think that's right. Or imagine if you could tokenize some of that real estate asset, so you may not live in it, but you may own it, so it trades as a different asset. Now, that changes probably the fair value of all assets. It's a kind of weird world. The other thing that happens is you do get, lifestyle arbitrage, and I think that will happen over time. You know, for example, I moved from London to Spain in, the early 2000s because for my one, three-bedroom apartment in London, I bought House on ten acres on a side of a mountain in a beach town in Spain. You know, the arbitrage between the quality of life, the weather, the cost of living, everything was so enormous that why would I stay in London, particularly with this digital world? So now there are, there are a number of places that are very attractive and much cheaper to live, and particularly as the developing world develops so fast these days, things are changing and you see it on this, in this hemisphere, you know, the Amer- Americans moving to Mexico, Americans moving to Panama, Costa Rica, you know, places like that, you're seeing a huge shift of people to, and, you know, in, in each of our areas, you know, in your, in your time zone, the amount of people moving to, let's say, whether it's Vietnam or Tha-Thailand particularly, you know, it's had a huge arbitrage of people moving there, saying, \"Well, I can do my job from, from Thailand, and it cost me fifty grand to buy a house or an apartment, so why" }, { "speaker": "stephan", "time": "52:35", "start": 3155.2, "text": "would" }, { "speaker": "stephan", "time": "52:40", "start": 3160.29, "text": "I'm also curious, you mentioned around the tokenization, one area that I'm unsure and I'm, I'm curious to know your thoughts. Can't people already buy, say, REITs and, invest in real estate in that way? So I guess my question then is, in what way is it meaningful to say that we've got, you know, real estate tokenization when people can already buy a fraction of real estate?" }, { "speaker": "raoul_pal", "time": "53:02", "start": 3182.22, "text": "Well, because when you buy a fraction of real estate, what you're actually doing is buying a fraction of an asset management firm and all the flows and Is you're actually buying a direct ownership of an asset, so you have no middleman, it's disintermediation of the middleman. So what you end up is a much more efficient structure of which to own things, and it's also more tradable in its own, you know, fractional format. So there's a number of different ways you can do that, so yes, it is somewhat similar to a REIT in certain respects, but don't forget with a token, you can tokenize different parts of the capital structure of a building. So- So it could be that you, you take part of the rental stream, or you could take the, the value stream, or you could take the renovation stream of income. There's so many different things you can do that you can't actually do these right now." }, { "speaker": "stephan", "time": "53:55", "start": 3235.14, "text": "Right. I suppose you're saying it allows for finer division of the components or potentially, slight gains from cutting out certain middlemen where, some kind of efficiency gain" }, { "speaker": "raoul_pal", "time": "54:07", "start": 3247.11, "text": "is possible. Yeah, and if you think of an, an apartment block in Sydney, and some of the apartments need doing up, some don't, some, some have rental income, some, you can actually package up all different parts of this And tokenize it out. So you can say, \"Well, here's our rental pool, there's five apartments here that are gonna rent, so you can take, you know, your token on the rent, so you've got building rent token. And then you've got, okay, well, these apartments haven't been done up, so they're still 1970s apartments, and they need renovating. So there's kind of...\" Renovation tokens, of which you, you get the rights to the future value after renovation minus the costs. Then you've got others that you may be already renovated, 'cause a lot of people don't wanna go through the hassle of renovation, but you could buy a token on a renovated property. You know, you could buy token on a perfectly- You know, a perfect for sale showroom property, which you may make less margin. So you're basically going up and down the risk structure of a building. You can't do that right now, but with tokens you can." }, { "speaker": "stephan", "time": "55:11", "start": 3310.9, "text": "Right, I see. Yeah, I suppose I, I, I just see it more like, you know, for me, Bitcoin is the biggest opportunity, and I just, I can't see a better asymmetric bet, but I appreciate other people have, different choices and different preferences. And again, I'm not" }, { "speaker": "raoul_pal", "time": "55:26", "start": 3325.81, "text": "saying, again, I'm not saying That Bitcoin doesn't offer that, I see that a hundred percent. What I'm saying is it's even bigger than we think because there's a whole world moving to digitization, and once we go to that, there's a whole world of opportunity. So if you're a- A younger person, your opportunity set's gonna be very different than you think the opportunity set is today, which is right now you've got, you know, this equities and bonds and blah, blah, blah, and you're gonna have, not just Bitcoin, but a whole different economy, financial economy for you to get involved in. Right, I" }, { "speaker": "stephan", "time": "55:59", "start": 3358.96, "text": "see. well, I think we're just about getting to the end of our time, but Raoul, thank you, it's been, fascinating discussion. I think, my listeners will get some great perspective out of it. But Where can they follow you and where can they find Real Vision?" }, { "speaker": "raoul_pal", "time": "56:15", "start": 3375.35, "text": "Sure. So you can follow me on Twitter. I'm very active, I'm pretty good at getting back to people and chatting to people, and that's at Raoul, R A O U L G M I. So GMI is Global Macro Investor, my writing business at Raoul, GMI, so you can find me on Twitter. And to check out Real Vision, just go to realvision dot com forward slash free, and that's the free channel, so you can just go and knock yourselves out with the content. We've featured crypto content from day one, so we have a lot of content, and we have some of the most famous people in the, in the space, from the founders of Ethereum to big investors like Dan Moher to ca- use cases like Like Wences Caseras, too. I mean, you name it, they've all been on Real Vision. So there's a ton of great, great content, and if you wanna understand the, the juxtaposition between macroeconomic world and the future of investing and how that all fits into this world as well, that's all there too." }, { "speaker": "stephan", "time": "57:12", "start": 3432.35, "text": "Fantastic. So look, I'll put all the links in the show notes and, Raoul, thank you again for joining me today. No, thanks so much." }, { "speaker": "raoul_pal", "time": "57:20", "start": 3440.12, "text": "Really appreciate it. Really enjoyed it." }, { "speaker": "stephan", "time": "57:22", "start": 3442.2, "text": "I hope you enjoyed the discussion with Raoul Pal. To my mind, with so many macro fund managers being invested in Bitcoin personally, it seems that it's only a matter of time until they're investing via their funds also. Also, I just wanted to take a moment and thank you all. As I record and release this episode, I've been podcasting for one year now, believe it or not. My first episode with Saftey Namus was in late July 2018, and here we are now, ninety-three episodes later in July 2019. I wanna express That's my sincere gratitude to all the people who make this possible, podcast sponsors, Patreon supporters, guests who give of their time to join me on the show, and I've got a very fanatical strong listener base who leave me five star reviews and share my episodes all over social media and in their chat groups and tell their family and friends about my show. It's truly a great pleasure to meet you guys in person at meetups and conferences or to see all the DMs and emails I get from listeners who really enjoy the show. I put in a lot of work behind the scenes to curate and research the show guests and material to make it as high signal as I possibly can. And for the support and gratitude I receive from my listeners, it's all worth it. I couldn't do it without your support, so big thanks to all of you. For new listeners, you can subscribe to the show using Apple, Android, or RSS links on my homepage stephanelivera.com, and you can also find show notes there. Thanks, guys, and I'll speak to you soon." } ] }