118 - Should We Be Scared Right Now? | Raoul Pal

Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Shod Adams here, and I'm with David Hoffman, and we're here to help you become more bankless. Guys, the big question on our minds to Raul Paul, the macro guy, the crypto investor, is this. Should we be scared right now, Raul? That was our question for him.

This is the Hold Me I'm Scared episode.

It is. And, you know, he didn't pull any punches. We talked about a few things to look for. Number one, all of the scary things going on in the world right now, inflation, recession, China COVID, stock market, crypto prices, even UST and what's happening in the tarot ecosystem. We talked about the way we're actually going to get out of this. If there is a light at the end of the tunnel, I don't know if I should have used that phraseology. That's like when you die, right? But is there some hopeful blue skies ahead? That was our question for Raul. And then finally, because he is a macro investor, how is he playing this market? Has he changed his crypto portfolio at all? Has he traded various assets for others? What that looks like. So this is a great conversation with Raul. We're glad we had him. I think the timing of this was just perfect. We thought we might be going into this episode talking a bit about the upcoming ETH merge, but since the market has turned so dark lately in crypto and in the world, this turned into a should we be scared episode. What were some of your thoughts, David?

Yeah, it was actually pretty surreal having this conversation with Raul as I was watching UST DPEG. It was like trying to watch a train wreck while I was doing a podcast. I was trying to keep my eyes, keep my attention on the podcast with Raul while I'm watching the UST price just completely fall off of a dollar. So we had to talk about that. So that timing was pretty crazy. But overall, just like Raul paints a really dark picture, not necessarily for assets, but just for the state of the economy. He's actually calling for bringing back STIMI checks, not because we have this COVID thing, but because we have a recession coming. And just the nature of the tight spot that the Fed finds itself in, he thinks that the people need to get money in their bank accounts in order to just live. And so this is not paying people to stay home because there's a disease out there. So that was a surprise to me. But Raul says that Europe is already doing this. And so he thinks that Europe is foreshadowing things to come for America. So he pays a really dark picture, Ryan. Whether or not that that translates into assets going up or down, it's a different story.

I guess that was a dark picture, but that was actually part of his like way we get out of this picture because he said that the Fed has not abandoned us. The safety net has not been taken. It's still there. It's just maybe a a little bit lower than it used to be. And so the Fed will return. And the way central banks get out of this is more printing of money, this time in the form of stimulus checks. So I guess dark at first, but he's not painting a picture of the Fed and the central banks completely abandoning this market because he makes a pretty compelling case for why they actually can't. So you'll have to listen to the episode and hear more of that. David, I think during the debrief today, I want to talk to you a bit more about this Terra UST thing.

Right.

And where you think markets are going, have a conversation about that. So that'll be fun.

Yeah, and also Ryan and I are in uh debate as to we have some cash on the bank list reserves and so we're in debate as to whether we buy now or buy later. So I think we'll finish that conversation in the debrief.

Yeah. And so that's a good question. I think that's on everyone's minds is if you have some cash, and that's really where Raul ends the podcast is do you buy now or do you buy later? If you're a premium subscriber, of course, you can unlock the debrief where David and I are about to get into that heated debate of how much more E should we have. This is where we fight.

So guys, uh stay tuned for that. And uh of course we're gonna get right into the episode with Raul.

Hey Raul, how's it going man?

What's up, Rao?

It's a total fucking shit show out there.

Wait.

W which part of the world are you talking about?

Well

I'm not too sure.

Well, no, it's everything, right? This is just we're starting the big liquidation phase in pretty much everything.

Um I'm looking at stuff like like Galaxy's down 25% today.

Oof.

Oof.

I mean Novo can't be very happy about that. He probably has to send the keys back on his yacht or something. But um

it's a mess. You've seen what's going on with the Terra ecosystem as well. Yeah. I mean, they're actively selling Bitcoin.

You know, I hear you know, jump in that whole equation is selling Ethereum.

We've got it's just liquidation of everything. And it's interesting because it's spilling out into the macro world as well, obviously. It's like stuff like oil, which was like the last thing that was holding up the inflation narrative,

is starting to get c properly clocked. I think, I mean, everybody, I think, in every position is about to lose money.

Oh my god, this is a red, red day. Guys, we're just hitting the record on this button. Raul Paul is joining us for a Bankless Podcast. Of course, we don't have to introduce Raul. He's been on the podcast many times. He's the founder of Real Vision, one of our favorite voices in the space with MacRel. And it's been about nine months since we had you on last time, Raul. And it was not a shit show. It was different then. Things were feeling a little bullish at that time. So I think we want to unpack all of this. And I think, look, the theme of today's episode is fear. Is like there's some scary stuff going on. So I think we want to start there with some of the scary stuff, but then also want to pick your brain on like how do we possibly get out of it? And also find out how you're playing this, whether you saw it coming, what's in the back of your mind. But can we start there with some of the scary stuff? You're starting to get into it in the crypto ecosystem. But what about like the big macro scare that I feel like is on everyone's mind, which is this inflation thing?

So, inflation,

we've had this really complicated macro situation where we had supply chain shocks.

Which was people can get factories and ships sorted out because people were still in lockdown with COVID. There was a massive backlog of orders, and this filtered through, and that raised prices because everyone, you know, if there's a shortage of goods, if you pay more, you get the goods, right? So that puts prices up.

Then we start to see issues in the commodity sector that have underinvested. So everybody comes online again, everybody wants oil, gas, everything else. So commodity prices start exploding.

Then we add on a Russia Ukraine war.

And the penalties on Russia, and that takes a bunch of commodities out of the market. So now we're in this perfect storm of prices rising.

But

people have also scrambling, like all of us, probably you guys as well, to try and hire people.

So we're all bidding up wages.

But wages, outside of some jobs, aren't rising as much as prices.

So what we've got is this situation where

wages have gone up,

let's say 4.5%, and prices have risen eight and a half percent.

So everyone's taken a 4.5% or 4% haircut

in their net worth. Now that hit crypto. It started as soon as inflation happened because if you think of crypto as a groundswell movement,

basically the dollar cost averaging by average people who are in the space

had started drying up. And we saw all the on chain activity basically flatten out. And we've been in this sideways sloppy range because we've seen no network growth across the entire ecosystem.

Within crypto, we'll talk about that later.

But so that slowed down there.

But we still had the kind of after effects of stimulus, people coming online. So economies were growing, but it now looks like all the forward-looking indicators

are starting to roll over

and start to show recession

because you've basically given everybody a

income haircut. So discretionary spending is going down the toilet. We're seeing in things like restaurant spend, we've seen consumer credit going up. So people are desperately trying to borrow money to maintain their expenditure plans.

We've seen mortgages go up.

By the most in history as a percentage.

I mean, they've absolutely exploded higher.

We've seen two year interest rates with the largest one year rate of change in all recorded history.

So what we've got, if you add all of these things, and we've seen the US dollar going up fast, when you put these things together, what you've got is the fastest tightening of monetary conditions in history. And we've seen it, the big tech companies are all starting to lay off staff.

They're all like, holy shit, even Amazon said we're overstaffed.

So we've completely turned the economy from, oh great, we're coming out of recession from the pandemic to oh my god, we're going straight back into recession.

The markets tightened before the Fed even got round to doing it. The market did its job

and it stopped economic growth dead in its tracks. Europe's already in recession. China looks like it's in recession and is in lockdown again.