The last time we hosted a video by RealVision's Raoul Pal, he laid out what indicators he looks at to decide if the next crisis has arrived, of which global ISM was notable but global trade was the key one, and explained that while the Fed is clearly aware of the economy's deteriorating condition, it is Yellen's job to preserve a sense of confidence and security until the bitter end.
In his latest video released this past week, we are that much closer to the end as the title of his interview with Grant Williams makes clear: The Reset Part 2.
In it Pal, who like us has been skeptical on the future of Deutsche Bank and most other European banks, walks us through his thoughtsfor predicting the collapse of several European banks from a Macro perspective. He explains what CoCo bonds are and how they are creating a market death-spiral for bank stocks which will ultimately trade at 0.
In the full 45-minute long video, Grant and Raoul discuss the impact and influence of monetary policy in this current economic environment, the policies in place and the possible monetary strategies/tactics to fend of deflation.
Raoul also takes aim at the global liquidity crisis, QE and the effects on the real economy and financial markets. The point at the fact that on a global spectrum, they’re no longer booming and growing economies of any significant magnitude - namely China - can no longer absorb all the deflationary waves of other economies. Raoul reflects on how much of CB liquidity injections (i.e.QE)/monetary expansion has been mainly flowed into the institutions which cannot provide that liquidity to the markets nor the real economy, creating massive mechanical financial black holes of illiquidity.
They two go through the probabilistic outcomes we could expect in the "next" recession; from a Chinese implosion, Japanese collapse, European banking sector crash, USD bull run, loss of Central Bank omnipotence, and other less than enjoyable outcomes.
Raoul then looks at what a NIRP world would look like, where wealth is taxed upon and considers the possibilities in portfolio construction and attractive trades such as long Treasuries. Here, Pal goes one better than Guggenheim which forecast the 10 Year at below 1% by year end, and forecasts that the yield on the 10Y will slide to 0.5% posing a complex systemic risks to pension funds and along with Central Banks, could begin to own large chunks of stock markets.
Naturally, with a rather sour outlook on risky assets, Pal then looks at the dynamics of gold as an and explains how he believes the market and price-action will react and play out.
As Pal says: "In the end, we are just part of the business cycle, if you create a debt super-cycle, you are going to get a bust."
Finally, they both discuss the different unwinds of this Kondratieff winter phase, acknowledging the possibilities of a "Fourth Turning" in the form of geopolitical unrest, a.k.a. war.
And while there is much more in the full interview, here is the real question Pal is trying to answer before the big reset:
"I think the most likely outcome, in the next recession one of the big uglies comes out.
I don't know which one it's going it be - it's a race between China and a 50% deval versus a total collapse internally of their economy because of their credit bubble; whether it's Japan which we have all been waiting for and it hasn't happened but maybe it happens; or maybe it's the European banking sector forcing the hand of everybody else, and suddenly all the collateral in the system is worthless again because the European government bonds are worthless again; whether it's just the loss of central bank control over the monetary system; whether it's the dollar wildly overshooting and then maybe some debt jubilee and debt forgiveness that needs to happen.
There's a whole host of things, it's almost impossible to know which one it is but what we need to care about is not trying to spot the one it's about is there going to be a domino effect."
As usual, RealVision has provided Zero Hedge readers with a free trial to its extensive one of a kind video library of countless informative interviews, which can be accessed at the following link.