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Raoul Pal: GroupThink Is Almost Ubiquitous (& The 1 Chart That Matters)
Exceprted from Raoul Pal's exclusive Global Macro Investor letter,
All together now
From a very top-down perspective, I find it interesting that most macro funds tend to align themselves in groups that share ideas, however I find the uniformity of views amongst these groups somewhat troubling. That is not to say that everyone is wrong but that too many firms have the same views and same positions.
The three groups tend to be:
- the newer New York macro and credit community,
- the older New York macro funds and,
- the London and Geneva crowd.
All three tend to be somewhat distinct from each other but the views held within each group are similar.
This is the groupthink effect.
However, it is not totally ubiquitous as there are many who hold very different views. The very macro-orientated tend to be broader in their opinions than those who are crossing over into macro from credit, multi-strat or event driven.
Summary of views
The first group (and the majority with whom I met in NYC) have extremely similar views generally. These are as follows:
- The US economy is fine and the lagged effect of lower oil prices on consumption is about to kick in along with real wage growth.
- Inflation is going to rise with wage growth.
- The European equity market is a better investment that the US market.
- Chinese equities are a trade worth having on.
- Japanese stocks are still an opportunity.
- The Euro is going lower and the dollar higher.
- Energy prices are going to rise.
- Global growth is fine and EM is not much of a risk.
Positioning
In terms of positions, people were very light on dollar positioning, had zero bond exposure at best or were short, were long Chinese equities, long oil names, long German equities, long Japanese equities and generally long US equities. Many had on specific EM trades such as Argentina or Venezuela, Puerto Rico or Greece (yeah, it’s an EM now).
I’m a tad different...
Just to be clear, my views are startlingly out of consensus. My view is that shorting the Euro is the best risk reward trade in macro, US bonds are setting up to be a stunning opportunity on the long side, oil carries significant downside risk, the US and elsewhere are potentially heading into recession, equity volatility is highly likely, EM is a major risk and Germany is at the risk of leading Europe into a recession.
Pure macro heaven (or hell)
My overarching belief is that this is the most “pure macro” environment we have been in for over a decade, probably since the Asian Crisis in the late 1990s, and I just don’t think people understand what is going on.
My entire thesis rests neatly on the US Dollar. Nothing else matters and if my view is wrong on that, then it is likely wrong on many things. What is really weird to me is that most people agree with my views on the dollar but don’t have the trade on, and were less versed on the macro knock-on effects of a strong dollar. Groupthink has tended to isolate particular parts of the US or global economy and ignore the bigger picture.
...
My views
In New York I presented a very different spin on the world to almost anyone else. I am wildly and comfortably out of consensus.
I think that the dollar is the only thing that matters. My view remains that we are in the early stages of what will prove to be one of the biggest dollar bull markets in history, and it is going to reap devastation on the global economy...
The Chart Of Truth
If you care about one chart and one chart only that sums up the entire risk to the world it is this: the DXY is forming a perfect wedge. It is going to break during the summer and the dollar is going to explode higher...
If this wedge breaks then I think the dollar will finish the year around 110 to 115, which would be consistent with the pattern of other dollar bull markets with an annual gain of over 20%.
In a nutshell
So, as you will see from all of the points below (and above), I fear that many people may well be backing the wrong horses.
Clearly I can be wrong, and for me to be proven wrong is pretty simple: if the dollar does not rally further then the status quo can be maintained and we can continue with this lacklustre global expansion for a while longer.
If the dollar rallies again from here then it is game over and the exit doors are small.
* * *
While mostly cost-prohibitive for the average investor, here is Raoul Pal's exclusive Global Macro Investor July letter...
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lol
Speaking of the Asian financial crisis in 1997 and the dollar....
http://freegoldobserver.blogspot.ca/2011/10/forgotten-crisis-and-what-ev...
He talked alot about currencies, like the Dollar, Yen and Euro. But nothing about the precious metals. I don't think he knows what real money is. Sad. And he is really fixated on the US Dollar. And its going to be real sad when the dollar goes straight up like an erection, then cums crashing down after the Fed blows its massive wad and suffers permanent erectile dysfuntion that no amount of QE or Viagra can help, it will be dead.
QE Viagra makes Investment Banksters go blind if they ingest too much. They say if an erection lasts for three, or more days, one should consult with a Physician, Mr Blankfein.
God says:
1)US bonds are setting up to be a stunning opportunity on the long side, Agree.
2)Oil carries significant downside risk, Disagree.
3)The US and elsewhere are potentially heading into recession, Too ambiguous to contemplate.
4)Equity volatility is highly likely, Disagree.
5)EM is a major risk and Germany is at the risk of leading Europe into a recession. Disagree.
Thank goodness I'm an atheist.
ya gotta upvote god or else you're a heathen infidel
Fuck God.
/s
You're beginning to annoy me, God.
Oh for Christ's sake.
Now if you believe in the trinity, I reckon you'd say "Oh for My sake." Is it cool to take your own name in vain?
Political Correctness has killed satire...
Tall Tom's god has no sense of humor (for those who don't know, he said that "God" here is dammed to hell for the moniker). I like this God better.
"God says:
1)US bonds are setting up to be a stunning opportunity on the long side, "
You mean as in their yield (interest rate) going lower?
As in, maybe, their interest rate going negative?
Well, what the hell do I know?
Then horrors shall fill your streets. The dead will outnumber the living, and the sounds of war will fill the ears of your people. As you have trampled over others, so shall your enemies now trample over you.
Your people shall rummage for food, where once it was abundant. They will thirst for pure water, because they have rejected Me, the living water. They shall cry for mercy but find none, as they have shown none to My people.
Prepare to meet your fate, America.You have been weighed, and found wanting. Your reign of power has come to its end.
Read more warnings from God at http://revelation12.ca
If God is unable to prevent evil, then he is not all-powerful.
If God is not willing to prevent evil, then he is not all-good.
If God is both willing and able to prevent evil, then why does evil exist?
-- David Hume
My Little One, I am Most High and I set into motion all of creation! I create and I set up! I set into motion! What is created to be evil does evil and what is created with great light, to do right, does right with some exceptions here and there. The closer any is to the Source of All True Light, the more perfect and holy is that soul! The closer a soul is to darkness; the more difficult it will be for that soul to connect with Me and with the Great Light Source of All things.
My Little One, I created Satan and I knew what he would do. I put into him arrogance, rebellion, anger, pride and an array of behaviors, which are not pleasing to Me! I raised him up, nevertheless, to serve Me, knowing also that he would wish to supplant Me, to take My place!
I took two little innocent spirits, the two little cherubim, who stand before Me, and I put these into two bodies, which I fashioned. My Little One, they did not know evil, but were pure and innocent; and I put Satan in their faces in the Garden of Eden, knowing that Satan would tempt Eve! For, he is evil and he also disdains all true light; for he wishes to have power over it all! He will always, therefore, set out to destroy what is good and right! This is the way I created him to be! He cannot be another way. So, yes, I knew that he would disobey Me, that he would set out to destroy these two in My garden.
I also knew that I would, therefore, also have reason to punish him; for I must also justify My actions. I am Most High, a God of great righteousness and justice! So, yes, I knew how all would unfold with Satan. I also knew how all would unfold with humanity from the beginning! I knew that I would create a very difficult and harsh world, wherein I would cast many souls, who would return over and over again in their purification journeys. I knew that none could or would ever be saved from such evil and darkness if I did not pay a great price for their salvation. For, Satan would be always in the faces of My righteous and pure ones, seeking to utterly destroy them.
cont here http://revelation12.ca/?p=1134
The elevator version is... God created evil because He wanted to raise up some co-creators and give them great power and authority... but first they must be tested in an appropriate environment to see if they can over come selfishness and always choose to do good over evil...
So the return of the Anunnaki and the Nephilim should be imminent?
All hail Planet Nibiru!
God created Satan so he could go long evil, and short his only begotten son Jesus Christ for a couple of thousand years on earnings. God is really an anal sadistic character towards his only begotten son IMHO. He laid a huge guilt trip on him like a Jewish mother and then he expects loyalty when he is nailed to the cross by more Jews that he pitted against him.
Frankly, God is a sociopath when it comes to victimization of human beings. If I had my druthers I would incarcerate God in a Psychiatric facility as a threat to society in general. I would not administer pharmaceuticals, but I would prescribe marijuana, and good music. And by 'good music' I mean anything but Christian Rock, God.
"If God is both willing and able to prevent evil, then why does evil exist?"
Because if people are freed from struggle, they don't write operas or novels or cure cancer. They tend to sit on the couch, smoke weed and play X-Box all day. That's no way to run a world.
that's basically my take...
with no "sin" (or choice, error, danger, threat, strife, ignorance, temptation etc) we'd basically be a race of cows (sheep? ;)
If YOU were God would you create this one creature whose better members ask "Why"?
our brief time on Earth (which is best thought of as a proving ground) is meant to sort those drawn toward the Light from those drawn toward the Dark.....Both Consciously and unconsciously we "battle" here on behalf of our respective "master"
If you disagree with 3, 4, & 5, then it seems counter intuitive to agree with 1. But what do I know Imuhnutjahb, and your God.
God recommends US currency bonds, but hes short on equities and long on Gold and Silver. Hes not idiot.
i agree the euro is probably going lower and the usd higher along with ust prices. and btw, greece is not an em it is an rm.
I'll take the other side of that. The Euro is going to 1.30
good luck. my logic is impeccable so it is probably wrong. :/
Oh and didn't he say that "the group" thought that the dollar was going to rise against the Euro ? The Euro is the biggest component. So he is going with the group-think
he kept saying people. there are no people, just algos.
While I haven't read his letter yet, I agree with Raoul on his views. The most important thing going forward is the dollar. Everything else will be affected by it.
Market thoughts:
http://thetradingcrucible.blogspot.com/
"While I don't know any of the facts, I think that the Cambridge Police acted stupidly."
- Our Dear Leader
I think he's a pretty smart dude. He's tight with Kyle Bass, who seems to respect and agree with many of his views.
That is, the dollar sucks, but it sucks less than anything out there. Therefore ...
Tried to give you a thumbs up, but funtion was not working...so THUMBS UP.
When you start ewith a quote mark, the arrow capability gets disabled. Don't know why, but some zh nerds do...
If you publish a newsletter and charge heck of a lot to subscribers, it'd be smart NOT to allow it to fall into outsider hands for nothing. Using search, the word "if" is used 42 times in 61 pages. He used to work for Goldman-Sachs. That says it all. No need to subscribe. You're not missing anything. Hope you're enjoying the Caymans, Raoul.
If he puts all his money in UST's then, like Paul Singer, he's invested in.....fiat. If the world goes the way Pal thinks, he will have won the investment award of the year...but lost a fortune. Wait! Bitcoin?
If inflation rises with wage growth, then there is no real growth...these are "think tanks"? If the dollar rises, and I believe it will before it vanishes the way it came, by "thin-air", then commodity prices will go down; not up. Good news is that GDP should improve because Obamacare is going to increase by a minimum of 10% in 2016 and counted as part of the GDP...of course the flip-side is that because of that there is less to spend on other items so the net affect is nil...what will the "think-tank" think about that?
A strong dollar works well for the folks in the click who got beaucoup FRN's for free or on the cheap, now they can stroll around the globe cherry picking assets, If the Fed. Funds rate goes to a whopping .35% then
the dollar will stair step up giving them even more bang for their fiat.
The dollar is now at 1.09. Are we to believe that endiing the year between 110-115 says anthing meaningful? That could be less than a 1% move.
Talk about your timid predictions . . .
To $9T in USD-denominated debt held in emerging markets, that's not timid. That's disaster.
The dollar may well be the last game in town. But when that game is over there's nothing left but pm's and barter.
but if the market crashes hard, so goes the dollar....
Not necessarily, in a knee jerk safe haven flight the dollar could get bid up significantly, as could treasuries---BUT NOT gold (for some strange reason). It doesn't make sense to me, it's kinda like fleeing a burning
building, and hiding in a trash compactor--just hoping someone doesn't turn it on.
Pal is a Shill he's NOT the only one who thinks the $ is about to rally significantly. Just google "Dollar Bull Market!"
I do think ....
1. The dollar will head up higher before it comes down crashing.
2. A number of oil companies have nowhere to hide but file bankruptcy.
3. Oil companies bonds and shares dive and send shock waves to the market.
4. Fed eventually have to print a lot more to soak up the soverign and big corporations junk bonds.