Raoul Pal Explains What Indicators He Looks At To Decide If The Next Crisis Has Arrived

Tyler Durden's picture

Two months ago, RealVision's Raoul Pal brought our readers an interview excerpt with "The Fourth Turning" author Neil Howe in which the author and current head of Saeculum Research explained "what keeps him up at night."

Today, we bring our readers another RealVision excerpt of a reflexive "interview" in which Pal himself is in the hot seat, and is challenged by Ken Monahan to lay out the market shifts he expects in 2016. In the full interview Raoul goes into detail on the indicators he will be watching throughout 2016 that will suggest that a liquidity crisis is imminent. He emphasizes that if this scenario occurs, most people are in investments that “they should absolutely not be in."

One such metric closely followed by Pal is the ISM. This is what he says:

The ISM to me is the global guide to the business cycle. I think that [with the ISM below 50] we have a 65% chance or probability of a recession. We’ve seen that the cycle peaked back in 2011. It troughs at some point. The cycle always does this. We look back at the probabilities. We have a reasonable chance of a recession. Again, I don’t deal in certainties. It’s not like it’s definitely going to happen.


... the probability is now that we crossed 50, that over due course, the business cycle will continue lower, and therefore we should see the ISM coming through 47 which is the recession level - maybe much lower than that depending on the severity of the recession. So that would mean that the year on year rate of change of the S&P would be negative.


... if I’m right and the ISM, for example, gets down to 47, 45 then you’d start to see the year on year rate of change on the S&P at -10%

A way of visualizing Pal's point comes courtesy of BofA, which shows that once the ISM drops below 45, it virtually always results in a recession, with just two false positives: in 1951 and 1968.

And then there is another indicator which Pal watches, one which we have been warning about since early 2014 when it first started to slide because it is the most important leading indicator into any global recession, namely trade - for the simple reason that while central banks can print  asset prices, "they can't print trade."

The ISM is my basic framework, you then need to further increase the probability of success of what you’re trying to do. So what you look at, for example, is all the other economic indicators around what’s happening in the global economy. For example, if I look at exports - global exports. Global exports around the world are the second lowest levels since 1958. There’s something going on that the world is slowing down. Some of it is dollar translation effect. And the other is volume loss. So there’s something going on that wasn’t going on in 2012.

Yes, something is indeed going on, and after years of ignoring it because it was masked by the "wealth effect" of central bank manipulation, the markets are starting to realize it. Pal then touches on all the other deteriorating economic data points we have covered over the past year.

Then we look at other things like freight shipments. We look at retail sales. We look at industrial production. Once you start putting all the data series together many of them are at levels - durable goods - that are only seen in recessions.

Correct, and yet the question is: why does Janet Yellen ignore it and continue to push on with the "recovery" narrative, because ultimately is all about the "narrative" to boost confidence:

Its the Fed’s job to say things are good because it’s about expectations management. Whether we like it or not it’s a behavioral economics world and I’m realizing that more and more that you need to look at how behavior and incentive schemes are done. Soshe has to say that. She’s not going to say, “Oh, my God, the economy is looking terrible” until she has to because then you flip around the expectations.

Of course, with every passing day, the moment when Yellen will say the "economic is looking terrible" draws closer, and with it brings not only a return to ZIRP, and then NIRP, but also presents the question: will the Fed do another round of QE, or will it finally proceed to what Bernane said back in 2002 was the endgame all along: helicopter money. Or non-helicopter money is on the latter.

There is more in the Raoul Pal interview excerpt can be watched below, and much more in the full hour-long interview. Furthermore, Raoul Pal has again given Zero Hedge readers an exclusive weekly trial so both the full Howe, and all the other fascinating interviews in RealVision's database can be watched in their entirety. To do so, please click here and use the "zerohedge" trial code.

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knukles's picture

Quit with the negative vibes, Moriarty.

barroter's picture

I had nothing but good thoughts about that bridge all morning long!


Dame Ednas Possum's picture

I subscribe to RealVision TV. It's good stuff, particularly for 'normal joe' guys like me who do not work in work in financial services.

OldPhart's picture

Someone help me out.   What is ISM, again?

PlayMoney's picture

National interview of manufacturing supply managers from 18 sectors. Here is December report ifin you want to peak at it, or are having trouble sleeping....  https://www.instituteforsupplymanagement.org/ismreport/mfgrob.cfm

T-NUTZ's picture

He doesn't look like RuPaul

leftcoastfool's picture

"He doesn't look like RuPaul"

He didn't bother applying his make-up for the interview...

order66's picture

If you draw a thicker line a few of those positives become false positives though.

Vlad the Inhaler's picture

First the Onion and now ZH is quoting Ru Paul?   WTF???

The only indicator you need is the last 30 minutes of trading today.  That was the sweet sweet sound of BULLS THROWING IN THE TOWEL.

Winston Churchill's picture

More like a solid "SPLAT" sound when the cat hit the floor.

Both biz channels decided to talk about absolutely anything but biz.


lasvegaspersona's picture


soooo...there's a chance that we will see a bubble re-inflate for the first time?...in all of history?....

The Dogs of Moar's picture


Meet the new crisis

Same as the old criss

You got fooled again

noless's picture

Look, the helicopter money is burn through whatever credit you can grab.

Always strings though, as some one said, everyone was in the French resistance in 45.

What would you spend that credit on? Do you really think the bill wouldn't come due?

Because trust me, if we're still on the Israel battlefront 4000 years later, someone is going to hold the records for your grand children.

So make sure it's worth it, k?

gatorengineer's picture

RuPaul would be better at predictions.  Anyone who doesn't  understand that the ism information is completely rigged is an imbecile

noless's picture

Land, people, trade.

Deny structures if you wish, but they exist.

Francis Marx's picture

Why is this guy thinking he can profit from something me and everyone else already know.  I need to get ahold of Tyler to troll my video services here too...

franzpick's picture

I'll be watching the Sunday futures indicator, 6pm ET: CB inability to further postpone the impending bank-commodity-trade-equity collapse isn't that hard to understand, and may not be more than this weekend away:


o r c k's picture

Chopper dollars

from the sky

It's raining Jacksons...

My, Oh my.

besnook's picture

i think it is becoming clearer that yellen may be trying to force the hand of .gov to furnish the helicopter in the way of an executive ordered tax cut so the cunt can win the fall election.

spekulatn's picture

Great stuff ZH.

PoasterToaster's picture
PoasterToaster (not verified) Jan 9, 2016 1:49 AM

It's a shame what Republicans did to him in the last presidential election.

MANvsMACHINE's picture

Thanks but do you have a link to something that tells me things to do when the depression happens? Recession is so 2015. Thanks much!

Element's picture

Jaw-boning is a fine art, some have it, and others are called Janet.

vesna's picture

Manipulate ISM. Is there a problem?

Y4-B_v8's picture

Couldnt he have said that next week (earnings week) might be a good indicator that the next crisis might already be in progress?  If Fridays close is any indication of what is in store for next week.

lordbyroniv's picture

just revalue gold to 50k and lets skip the heli-money.

Money_for_Nothing's picture

... if I’m right and the ISM, for example, gets down to 47, 45 then you’d start to see the year on year rate of change on the S&P at -10% ...

Lots of downside if the relative cost of the dollar rises. ISM being at 45 would just say the cost of dollars increased. At this point dollar cost is the dog and ISM is the tail. A manipulated ISM is the same as a dog with no tail. The butt still wags.

Currency war.

Money_for_Nothing's picture

Right now the main players (deep state) can control gold.

The only scenario I see where control is lost is if a huge gold strike is found. The information would have to get out before a clampdown. The area would have to be remote enough and big enough to not easily be controlled militarily. The probable outcome would be a nuclear strike on the terrorist gold. :-)

Maybe the real secret of area 51 and other such areas is that they sit on huge gold deposits. :-)

indygo55's picture

I see the gold and silver price rise when the buyers demand physical metal instead of paper. Right now COMEX is settling mostly in dollars, probably with a premium. But when only physical metal will do and when big dollars demand physical and they cannot deliver then the PTB will try like hell to hide that. But in the end physical possession will prevail.


Here is an interview that may help people understand what is happening in the mining sector that spills over to the investment sphere. This guy thinks big hi net worth investors and banks who are close to them are the big buyers right now. Not the little guy. So what happens when the little guy decides its time to buy? All hell will break loose in my opinion.




Consuelo's picture

"So what happens when the little guy decides its time to buy?"


Cart before the horse.  


What will be the impetus - the 'spark' that sets the 'little guy' to chase gold in the first place...?  


And what will precipitate that 'fear'?   What is there to be afraid of...?  The Fed/ESF/Treasury complex have your 'Comex' and any relation of precious metals as an anti-dollar trade, completely Captured.    

The only way the 'little guy' wakes up and smells the simmering currency crisis, is by off shore entities employing gold in some capacity, as proxy for trade or as tacit backing for their own currencies, where no amount of chicanery by U.S./London entities can thwart it.

We're not there yet.



Money_for_Nothing's picture

Gold hording will not be allowed (FDR). The anti-hoarding is still on the books (Woodrow Wilson, WWI). What country can you live in that its government officials won't nationalize gold? Fort Knox gets refilled on the cheap if the price of gold gets out of control. Doubt if they pay 60 cents on the dollar this time.