- Raoul Pal, the former hedge fund manager who founded Real Vision, believes the fallout from the coronavirus will have immense and far-reaching impacts on the global economy.
- The duration and severity of the pandemic is something Pal said has not yet been properly addressed.
- Pal believes a further 20% drop in inventories is on the horizon.
- For context, in October, Pal called the Federal Reserve’s reduction rates to zero and the United States having negative rates. At the end of February, Pal said he was buying bonds and that the impact of the coronavirus would be “significant and real”.
- Click here for more BI Prime stories.
“The whole world f – ed. “
This is what Raoul Pal, the former hedge fund manager who founded Real Vision, said on the “Lindzanity” podcast when he first learned that the coronavirus was uncontrolled and spreading rapidly.
“By the time the spread hit Iran … and then Italy – it all happened in three or four days – I was like:” it’s time to panic before everyone else “” , did he declare. “It is the function of human behavior. If the Chinese close each border and each city, everyone will do it. “
To keep you posted, Pal retired at 36 after quitting jobs at Goldman Sachs and GLG Partners. He lives comfortably on an island of 140 people in the Cayman Islands and spends his days writing market research, which comes at a high price of $ 40,000 a year.
“I said,” Look, this is the biggest economic event in all of our lives – and it is happening, “” he added. “And it was, in retrospect, the biggest call I have ever had. “
But this is not the first time that Pal has sent a considerate call. In October, he said the Federal Reserve needed to cut interest rates to zero and warned of negative interest rates in the United States, both of which have materialized.
In addition, as the market ended in late February, Pal expressed his affinity for bond ownership – a trade that would have immensely rewarded the investors who followed his advice. He also warned that the implications of the coronavirus would be “significant and real”.
It was before things really started to fall apart.
Today Pal believes the coronavirus will cause “the biggest insolvency event in history.” And given his recent history, this is not reassuring.
“I think the balance of probabilities is that this is a much longer event – in terms of economic impact – than anyone expected,” he said. “I think it’s a huge change in society that comes from all of this. “
For Pal, the duration of the coronavirus fallout is the key factor here – one that he believes investors are not paying enough attention to. In his mind, those who forecast a strong V-shaped recovery in the third and fourth quarters are wrong in their assumptions.
“The isolation is going to be a real event for an important period,” he said. “You have a world that is going to be much more closed and that leads to complications in supply chains. “
He added, “It makes people more local. “
Pal’s prognosis echoes that of billionaire “king of bonds” Jeffrey Gundlach. In a DoubleLine webcast earlier this week, Gundlach said “we’re going to be a lot more, less connected to globalization” and “we’re going to bring manufacturing back and think about things in very different ways.”
But the changes highlighted by Pal and Gundlach don’t happen overnight, which is why Pal believes the fallout could worsen. Each day that the pandemic continues is one day less without production or consumption. Then, this, in turn, increases the risk of bankruptcy.
With all of that under consideration, this is how Pal positions his portfolio to tackle a deeper stock rout. Ideally, he would like to get the allowance below.
- 25% Bitcoin
- 25% gold
- 25% cash
- 25% trading opportunities
“So, I’m now on the verge of thinking that we have yet another 20% disadvantage ahead before we get the 3-4 month bounce of hope,” he said. “For the average guy, this is a very, very, very difficult world that we are going to enter – and I cannot sweeten it because there is no right answer. “