Macroeconomic expert Raoul Pal says global markets are locked in a mass liquidation phase – and he doesn’t expect a turnaround in the short term.
In a new interview on Real Vision, Pal says no matter what’s in your portfolio, more pain is likely in store.
For now, Pal cites the US dollar as the only thing that may remain strong.
“This is an ugly market. What I think is going on here is there are two factors for the market to digest. One is inflation, and that created the market to set up in certain ways. Everyone’s crowded into certain things. Then, growth starts evaporating. You can see it all over the place, [in] stuff like consumer discretionary stocks. You can see it in the forward-looking indicators.
So the market has to deal with inflation plus [slowing] growth, and what that basically means is everyone’s hit the liquidate button. So everything’s getting liquidated. This is the correlation of one-star markets that I was warning about. And it hits everything from crypto to pretty much everything and the thing that stands above all ends up being the dollar. Because that is the kind of safe haven… We’ve seen some huge moves in the dollar, and I’m not sure it’s entirely done yet.
So there is a massive liquidation going on as people struggle with their portfolios because basically whatever position you’ve got, it’s wrong. And that’s the pain everyone’s gonna have to take for a while.”
If his prediction comes to pass, Pal says growth stocks, gold and crypto may stand to benefit.
“If I’m right and that inflation story is going to change and growth is going to go slower, then we start shifting into a dynamic where we question what the central bank’s going to be doing. And if bond yields are going to come lower, stuff that’s been really beaten up like the further end of the growth stocks, they should be more interesting in that environment because they got killed by inflation.
I think gold does pretty well. Interestingly enough, gold and growth stocks tend to do badly as real rates start tightening. But they got to zero and it looks like the world’s falling apart just as the central bank is trying to undertake quantitative tightening or at least no QE (quantitative easing). And if that’s the case, then real rates are going negative again. If I’m right, that’s usually good for gold, crypto, long-end of growth, that kind of stuff, and bad for everything that people have been in like commodity stocks.”
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