GMI Describes "The Future Recession In An Ongoing Depression" In This Must Read Report

Tyler Durden's picture

Raoul Pal, who retired from managing money at the ripe age of 36, after co-managing GLG's Global Macro Fund, and the hedge fund sales business in equities and equity derivatives at Goldman among others, and has been publishing the attached Global Macro Report since, has just come out with the most condensed version of truth about our economic reality we have read in a long time. The attached report provides the most in depth observation on the "future recession in an ongoing depression" which is arguably the best way the describe the current economic predicament. Raoul goes all out in describing he worst recovery in history, touches on he complete disconnect between the bond world and the imaginary equity surreality, provides countless evidence the economy has not only not left the recession but is getting progressively deeper into it, shares several trade recommendations, and on occasion swear like a drunken sailor. A must read report for everyone who is sick of the CNBC/sellside daily onesided propaganda.


h/t Mike

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equity_momo's picture

Thankyou very much for posting some GMI work. 

Pamela Anderson's picture


You have to enter the 4 characters code and then click download, after that you wait like 30 seconds in the next window and then click on regular download.

william.smith61's picture

Car Headlight Been warning folks since February that the rally's days are numbered and that we will revisit the old lows. Many are confused why my message is so different from all their Financial Advisors... Unfortunately, many are sticking with the advice of others because they prefer the "hope

Pamela Anderson's picture

Besides the great analysis I like that he shows his positions and performance.

On the Yen he wrote:

 "We are getting close to the point where Yen strength will run out of steam and weakness will take over, as Japan starts moving closer to a default when the world moves back to recession"

This is very interesting USD/JPY is currently at 85.35 that is a record multi year low, lots of people want to short the yen based on similar arguments and on the fact that the Japanese society is getting older and ...bla bla bla (I lived there for 3 years and yes is an amazing place but there is not enough young blood).
Yesterday, Zero Hedge posted a link ( referencing an FP article about  Japan Limiting Forex Trades of ‘Mrs Watanabes’. If you are thinking on shorting the JPY the article is a must read, and the point that they make is exactly the same point that FX Concepts (John Taylor's) made a couple of weeks ago as a big reason of why not to short the Yen... "Japan is going to repatriate a tsunami of yens when the slowdown in the world economies start, those are leveraged trades that Japanese people took in the FX markets with borrowed yens" besides the short squeeze from all the people shorting it. Just to put the trade into perspective FX Concepts is calling for USD/JPY close to 75 (yes is 75) by February or March of next year.

I understand Pal's argument and in the long run JPY is going to have huge issues... the aging population one of the most compelling ones, but for the near term (next couple of months) I think FX Concepts is right.

drwells's picture

Thank you ma'am. I hate Scribd as well.

aus_punter's picture

so according to page 54 if you had followed his trade recommendations you would probably have gone broke

Charley's picture

"The attached report provides the most in depth observation on the "future recession in an ongoing depression" which is arguably the best way the describe the current economic predicament."

Not just arguably the best, TD. It is a dead on accurate statement:


We are now in the third depression since 1929


Goldenballs's picture

Yep 2008,2009 &2010 ................

Mr Lennon Hendrix's picture

'05, '06, '07....

OK for context to the junker:

Housing tops in '05, equities in '07, so this current depression, in my book, started in '05.

chrisina's picture

1970s in no way compares with what the world went through from 1929-1945 and what the world is going to go through in the next 20 years.


World economic output didn't shrink in the 70s

Total debt in the West didn't shrink in the 70s

Stock market indexes remained more or less flat in the 70s


In the 30s, World economic output shrank by 25%, total debt in the West shrank by more than 50%, stock market indexes crashed, and more importantly the human and geopolitical consequences were enormous.

What happened in the 70s was tiny in comparison with the great depression and the super great depression we are going to go through now. Both depressions have the same cause, an astronomical bubble in private debts.... the 70s wasn't even a blip in comparison.

Noah Vail's picture

I generally agree with that. The 70's was stagflation and oil crisis at a time when energy was a much larger factor in industrial production. We still still used oil to actually make stuff back then.But remember inflation topping at 19% did wonders for making assets look good and keeping the velocity of money up, so much economic data is badly distorted by inflation. And then interest rates hit what? 13% Imagine that now !

DaveyJones's picture

And the clothes and music were better in the thirties too

Lord Welligton's picture

Some day you might have to cut off your golden balls and sell them for food.


Implicit simplicit's picture

From 1957 to 1997 (which were part of the good years all in all), "of the 500 largest compa.nies in 1957, only 74 were still part of that select group, the S&P 500, forty years later. Only a few had disappeared in mergers; the rest either shrank or went bust." Taleb quote from The Black Swan

if this many companies can fail, or do badly, in a relatively good long term economic  environment, imagine what the next 10 years will be like in this cycle downturn.

In light of the article and the quote the potential for of higher volataility along with many company failures in the coming years makes a longterm vix bet and S&P shorts seem appealing.

There is an argument for short and hold-longterm being the analogy to the old buy and hold- longterm.

nopat's picture

I think you're misunderstanding and misapplying Taleb's quote.  It isn't so much /if/ this many companies can fail, it is precisely /that/ companies do fail and is an observation on the assumption of natural normality in spite of the preponderance of outliers (e.g. biological evolution is the demonstration of non-normal events).  While we may cling to a "static" metric like the S&P, periodic returns, averaging (weighted or otherwise), pig entrails or mystic crystals as a benchmark for economic performance, in reality it is a dynamic beast and the parts are as important as the sum.  This is normal.  This is how it /should/ be.  Old growth forests burning to the ground to allow younger trees to flourish, elderly populations leaving the workforce and eventually dying, technological improvements driving new competition into the market and uncompetitive firms out...I mean, take a look at the menu bar at the top: "On a long enough timeline".  The appearance of too many "old growths" should send the klaxxon's wailing that things aren't functioning as they should be.

I think the point is, as always, bulls and bears make money, only pigs go to slaughter.

hbjork1's picture



Some economic entities, modify, buy out younger competition, morph with time into something different without giving up the original name. Some simply shrink and go out of business.  I have been around long enough to watch the process.  Polaroid has almost completed its life cycle.  Control Data (a world beater for a few years) completed its life cycle years ago but the "super" computers have modified every thing that US society does. A number of startups in "Crop Genetics" (one company name) are gone but Monsanto and duPont are making lots of money "in the field". 

IMO, the next big thing will be human genetic modification. (A solution for our societal obesity and stupidity problems?).   

Its going to be a unique time.

About 35 years ago, Science Magazine published a note on psychological experimentation at the University of Chicago(I think).  Two groups of kittens (split siblings) were tested for response to the effects of exposure to a high frequency sound that they found intolerable.  One group, when small, was subjected to the sound at low levels of the sound when they were trying to eat.  The other group was raised normally.  

Both groups, when fully grown, were subjected to high levels of the sound.  The group that had been raised normally could not eat to the point of starvation.  The group that had been exposed to the sound when small did not like the exposure but when hungry laid back their ears and ate.

In our time, unlike the 30's, the means for economical food distribution exists.  And some of these unoccupied houses are quite roomy.  Two needy families per repossed house?

Could we deal with the new normal by going back to an "old" normal.




anonnn's picture

Have you noticed? The founders of our corporations are mostly dead and long gone. Their legacy is corporations run by just hired-CEO actors practicing feral corporatism.

Consider this view...

[from C. Wagenvoord aka Belacqua Jones]

Madmen and idiots are the lifeblood of corporate imperialism. They give life its color and pizzazz with their belief in infinite growth in a finite world, a doctrine they share with a cancer cell.

Corporatists differ from primitives only in that corporatists mistake a blind momentum driven by ego, greed and stupidity for destiny.

Human sacrifice is more popular today than at any time in history. Only now, the priests wear suits instead of robes.

The battlefields of the world are littered with the corpses of those who thought they were fighting ignorant savages.

Let’s talk about the mainstay of American ascendancy, Feral Corporatism. I know folks like to talk about a feral capitalism, but they are missing the point. This is why so many of your critics are shooting blanks. Corporatism stomped capitalism into the ground decades ago. Though the public tends to conflate the two, there is a crucial difference between them: In capitalism, the owners call the shots; in Corporatism, overpaid employees call the shots.

The dogma of "free markets" is sanitized by calling the disasters "structural adjustments." This is like calling Hiroshima a home renovation project.

Feral Corporatism is the harbinger of freedom. The path to freedom leads through the swamp of impoverishment. The best way to teach a man about free enterprise is to starve him. The starving man is motivated to steal bread and sell the surplus to his neighbors for a tidy profit. In this way, he improves his station by screwing his fellows.

All commerce is grounded in crime. A man achieves success when he is powerful enough to legalize the crimes that brought him to power.

One basic rule of world domination: The only way to defeat a rogue state is to become one; the only way to crush the Axis of Evil is to embrace evil.

Goldenballs's picture

Truth is the most valuable commodity to have .........................

Implicit simplicit's picture

The truth hurts but it sets you free. Short the rallies.

Lord Welligton's picture

You wouldn't know it if it bit you golden balls.

Goldenballs's picture

Some real pearls of wisdom off yourself today.Stay out of stocks ...........

Leo Kolivakis's picture

Just keep buying them dips, Raoul.:)

traderjoe's picture

Read your piece the other day when you discussed that this was a regular cyclical recovery. That seems to ignore all of the evidence of how we got into this recession and how it will be playing out. I get the reflation at all cost argument. Seems to be working. Don't get at all calling this a regular recession (business cycle) as opposed to a balance sheet recession. That's why I think all of their actions will eventually fail. 

Young's picture

I think Leo is actually Tyler's alter-ego designed to annoy (we) the bears...


Price of gold on Sep. 10th, 2001, the day before Osama bin Subcontractor attacked us because he hates our Freedom Fries: $271.50. Current price of gold: $1,197 - up 341%.

S&P 500 on Sep. 10th, 2001: 1,093. Current S&P 500: 1,126 - up 3%

This does not take into the dividends that one would have gotten from owning the stocks but I doubt that it would make much difference.

Gold up 336% stocks up 3%

Price of hot air - same as always

VK's picture

Great summary! Consumer metrics has declined sharply in the last month or so, we're closing in on 4pc contraction right now in the eCONomy and yet it's going to be a prolonged period of deflation, deleveraging and depression.

midtowng's picture

Negative 2.5% of GDP sounds about right to me. Although I wouldn't put it out so far as Q4. Some time this quarter is closer to it.

  Then followed by another extremely weak recovery. It's a step-down Depression. Not all at once or the frog (aka workers) might jump out of the pot.

B9K9's picture

Look, it doesn't take being a genius or even being a member of a club/group/clan to organize nefarious events to see what is occurring @ a macro level:

1. Demographics - Older, educated, highly skilled earners (boomers) are being replaced with younger, uneducated, low skills & wages illegal aliens.

2. Off-shoring - Regardless of demographics, off-shoring destroyed private sector employment.

3. Resource depletion - When the first Euros arrived, the entire continent was practically empty with easy to access resources literally lying on top of the ground. Today? Not so much - oil anyone? Again, this would have been a problem regardless of off-shoring and/or demographics.

4. Debt - 70 years worth of debt accumulation has reached the point where the marginal utility of debt has fallen below a 1:1 ratio. This would have been a problem regardless of demographics, off-shoring and/or resource depletion.

Any one of these primary drivers could sink civilizations, and have for thousands of years. The original model of the USA might, **might** have had the flexibility to adapt to these circumstances, but today, not so much.

So, when you step back and evaluate the macro perspective, it just seems really difficult to see how the USA is gonna come out of this in one piece when one considers that all four killer trends are occurring at the same time. That's why all the machinations being taken by the Fed, USG, MSM, et al really smack of the types of desperate actions taken by someone who's drowning.

What do desperate people do? Emotions begin to color their judgment until panic causes them to break & run. In the case of drowning victims, outright terror results in grabbing for anyone/anything to hang onto, regardless of other people's personal safety. (That's why lifeguards use those plastic buoys - they don't want a drowning person anywhere near them.)

So let's relate this to the markets. At this point in the game, the PTB simply do not give a shit about how transparent their bullshit is. Their hair is in their face, they can't see the shore, they're thrashing, and going down for the count. ZIRP, suspension of MTM, Fed printing for MBS/UST/GSE, legalized fraud, manipulated stats, MSM propaganda, SNAP, UI, mortgage forgiveness->retail ramp, and gunning the markets didn't work to improve **confidence** and re-ignite credit expansion. So what are they going to come up with next?

Going forward, each successive action will be increasingly more irrational, more ridiculus, and more dangerous. Losing gamblers who keep doubling down usually end up in the streets, dead or otherwise.

This whole panorama can easily be seen if one chooses to step back and take a look. Once you get the big picture, it's pretty damn easy to divine what the numbskulls are going to try & pull off next.

Shameful's picture

I agree with your macro view but I disagree about the "irrational" actors on the top anyway.  This is the century of change, and many have written about a post industrial world.  We don't get from A to Z without turmoil.  To make it to a post industrial world it necessitates turmoil, so the serfs will accept the new way of living, or barring that simply die off.  After all population reduction and a greatly reduced standard of living has to be sold to the serfs, and you don't sell it in good times.

Now I don't think it's possible to pull out of the tailspin even if they wanted to for the reasons you mention.  I think this is the reason you see the seed vaults, armored redoubts, and remote property of many of the big boys.  When you see a storm coming (or helped make) you take precautions.

For the lower tier guys, sure I can see the desperation.  They are picking up nickels in front of the steam roller.  But I have to think the big boys would have seen this coming, and had the resources to prepare for it.  The collapse is all but certain after all, for the reasons you mention.

B9K9's picture

Good points. I might add that any characterization of rational vs irrational does not necessarily correlate with income/power. There are plenty of people, like Bernanke, who appear to be true believers, while OTOH, there are plenty of poor/modest people who sure as shit can figure out what is occurring and are rapidly preparing.

Sure, there are plenty @ the very top who saw this coming. I think they saw what was occurring and just bet on the trends rather than actively worked towards hatching a plan to make it all happen. That's why I opened with prefatory remarks about there didn't need to be a secret club to cause all of these events to play out. If history is any guide, and so far it's batting 1.000 percent, these trends & transitional change-overs have been occurring since yeast eventually morphed into humans.

So, back to the rational vs irrational comparison. We've got irrational folks - like Leo - or those who are just really good @ trolling for hits. Then we've got the rational minority who look at these larger macro trends, shake their heads, and figure there's just no way this thing is gonna fly.

So that means the astute person will conclude the trick is to forgo considering fundamentals and just position themselves to take advantage of increasingly desperate actions taken by the true believers - those both in/out of power.

We know for an indisputable fact that the actions taken to date have failed. Not that they really had a chance, but still there was an outside possibility. Now, however, we're entering the land of diminishing marginal returns. In football, this is when a team abandons their original game plan (typically oriented around ball/clock control) and begins to execute increasingly high risk, low probability plays. Unless there is a miraculous, come from behind victory, we all know the outcome.

Same true for the USA. It's getting late & the clock is running out. What do coaches & tyrants have in common when it's all slipping away through their fingers?

Rebel's picture

I used to live in the start-up world in Silicon Valley. Many of the uber-rich venture capitalist I know are doing exactly what you are describing . . . building compounds in remote areas. I see them taking fairly extreme measures to prepare for what they must perceive is happening.

I now live in an area where the average income is probably around $15K per year. Yesterday, I needed to have a heavy item moved from a storage shed about twenty miles from my house, to my house. I was driving around, and saw a Mexican loading a lawnmower onto a trailer after mowing someone's yard. The trailer looked like it could carry the item I needed moved. I stopped and asked him if he would move this item for me. He said he would do it for $50 (using his pickup and trailer, 40 miles round trip.) I gave him a $50, and keys to the storage shed and told him where I lived. I went home, and about an hour later he showed up with the item, and two other men to help unload it. After he unloaded it, he commented on my little flock of 10 chickens. He said he had 250 chickens. He did not feed them, but they did fine scavenging for food. He said he did not have time to fool with them but gave eggs to all his friends, and sold eggs for $1 a dozen to anyone who wanted to buy them. He also had a large garden, and he has a set of scales at the entrance and a money box. He lets anyone come and pick anything they want for $1 a pound, and on the honor system they leave the payment in the box. He said that he did not think anyone was cheating, and felt like most people were leaving extra money in the box. He also sells produce from the garden to local supermarkets. The garden is fertilized with the chicken droppings, and watered by a windmill and simple irrigation system. He also had some pigs, and he fed them the excess from the garden, and if pickings were slim for the scavenging chickens, he would give them excess from the garden. He said he worked 12 hours a day mowing grass for people, but on most days he comes home to more money in the box from his garden than what he makes mowing. He also said he has a fruit orchard, and is starting a pecan orchard. He is doing all this on 10 acres that he owns free and clear. He said he had not bought food from the grocery store in the last 5 years. He also sad on the weekend he makes up food boxes with his eggs and produce and delivers it to needy old people in the area.

I found this man fascinating. He had no formal education, had never heard of the Fed, and was completely clueless on the economy. He was not preparing for a collapse or disaster, he was just doing what he has always done, and that is to provide for his family, and others in the community . . . and yet, he is probably the most prepared person I have met.

Should things collapse, I think many of the uber-rich will be OK, as they clearly see the mess that is coming, and are making arrangements. At the same time, many of the people viewed as being low in the socio-economic scale will be OK because they have relevant skills, and know how to take care of themselves. It is the vast number of people in the middle that I think are in for a reckoning. People who don't know how to do anything but shuffle paper or sit in front of a keyboard. 

ToNYC's picture

I think Darwin had it right by way of Schumpeter.

Kayman's picture

I admire anyone who can read Schumpeter (or Marx for that matter).

You must be endowed with great divining tools.

If you add survival of the luckiest to survival of the fittest, then I can agree.

But reverse the order- Schumpeter had it right by way of Darwin.

feeb's picture

Fascinating story, Rebel. Thanks for sharing.

I am about as prepared as I can be, situation being considered - but I still live just a few miles outside of Washington DC so I'm clearly not THAT prepared. When moving recently, my fiance gave me a lot of looks and tongue-in-cheek comments about the weight of my safe, the sheer volume of food in my apartment, and because she's from guns. She's not a big fan of those.

I recognize that I and many others of my ilk have foregone productive education and employment in favor of easy money...I barely work 40 hours a week in a good week, I do ok at $100K+, and I have been in this position since I was 24 years old. This equation is utterly imbalanced...but I recognize it. Most of the people I speak with - either strangers I run into or friends I have known for years, they think the Fed is just another silly DC institution, they think the status quo will return, and they have been thoroughly brainwashed.

I think the most difficult thing about our present situation is finding a balance between preparedness and allowing yourself to live for today. I used to take the preparedness thing too far - I was loaded with index and bank stock puts on 3/15/08 (then of course I sold them in April and May...WAAAAAY too early)...I thought that was it and then it wasn't. I think that over-emphasis on dramatic change made me very negative and downcast in my every day life. But now I save everything I can (this while paying for a wedding, sigh) but I also go out and live life to the fullest. I travel at least once a month just for fun to new, random destinations. I talk to people more, especially people from different walks of life...people like your chicken farming mexican friend. Society has long-derided people with typical blue-collar skills but the real parallel is the man who can only lift himself up by putting others down...this behavior is very transparent and very pathetic. 

I hope to convince my fiance to join me in a more independent lifestyle somewhat akin to your own, but I don't see that being feasible in the next 5 years and I fear there simply isn't that much time left. Be well and be proud of where you are in life - it sounds pretty fantastic ;)

Goldenballs's picture

Regardless of what modern society believes to be a good education and true "success" I have always found travel to be the most educating thing in life.I believe if you can talk and find interest  in people from all walks of life you are never "lost" and this is often true education.People need hard cash or a medium to trade to survive but just because you have a lot dosen,t mean you are "happy" or have a quality of life.Mass wealth buys you freedom from the system and allows you to have choice.Being a hamster in a wheel is not much fun.Work for me at the moment is slow,however I have some which is better than nothing.When I have a spare day I nip out metal detecting or digging on a local Victorian tip.Yesterday a case in point,nipped out for approx 4 hours,air was fresh,Sun popped out for a couple of hours,turned up $16.00 in spendable,a 50% Silver Sixpence 1924,a few items of scrap and then went home for tea.Very civilized,relaxing and no-one on your back and didn,t waste the day.

ToNYC's picture

Find some fee simple vacant land (quarter acre) 180 degrees away from population core...old industrial land, rail right-of-way abandoned... with water well possibility and guaranteed not toxic waste dump or like and learn to build the soil. Keep doing that and planting vegetables and you won't need gold or guns.

primefool's picture

Whatchoo all usin fer terlet paiper ? Ay loikes dry leaves - avoid eucalyptus.

IBelieveInMagic's picture

Now that is what I would call preparation.....PreparationH!

DoChenRollingBearing's picture

Shameful, B9K9, Rebel,

Most excellent comments above.  I think many have seen this coming, and it is up to each of us to decide our fate in this dangerous time.


Any of you going to join our little protest against the system Thursday August 12 by pulling $500 from your local ATM.  If enough of us do it, it will get some attention that there ARE some of us who will ACT.  Hope to see you all in line, get there early!

This applies to you non-USA ZH-ers as well.  If you are mad at the system, well take 500 Euros, 50000 Yen, 20000 Rupies, etc.  In fact, since Asia and European banks open before ours do, YOU GUYS would be starting the worldwide protest!

DarkAgeAhead's picture

best post or comment i have read here.  completely true.

russki standart's picture

What a Gem! Please pass this on to your grandchildren.

tip e. canoe's picture

one day soon we may all have to choose a side:




hopefully, this story will make it easier for some to pick the side their heart tells them to pick.

good soap rebel.