Former Goldman Sachs executive Raoul Pal says that the macro backdrop is starting to look attractive for risk assets like Bitcoin (BTC) and crypto.
In a new ask-me-anything (AMA) session on Real Vision, Pal says that investor sentiment is currently at extreme fear and that could be the catalyst for risk assets to pull off an unexpected surge.
“The pain trade I think is to sucker everybody in thinking there’s a great glory collapse to come, the ‘I told you so’ moment, and earnings are going to get revised lower. All I do know is people are record negative sentiment. They’re more negative than I’ve ever seen ever in any history… They’re super negative. People are super hedged. Put volumes have been incredibly high.
So I think the path of pain is to go lower, suck more into short and then rip higher. It would rip higher because bond yields start to fall as they start finally recoupling for the business cycle. Bond yields have massively decoupled from the ISM (Institute for Supply Management) survey. That’s a relationship that’s gone back 50-60 years.”
According to Pal, the bond market is broken as sellers are currently overwhelming buyers, but the macro expert says that the setup could motivate the Federal Reserve to finally loosen its monetary policies.
“It is now a function of illiquidity because nobody is involved in the market, and there’s only sellers. I think it’s going to cause tremendous problems. That eventually is going to create the answer, and the answer to everything is always more cowbell. The UK showed it: more cowbell, print more money [and] get us out of this problem.
When people say they’ll keep hiking until it breaks, well when it breaks more cowbell. The whole system is now setup for one cry which is more cowbell, turn the taps back on.”
Pal highlights that once central banks turn the taps back on, that’s when assets like Bitcoin and crypto can rally.
“It’s a sad state of affairs, but that’s how it is, but you can trade that to your advantage. Trading to your advantage is understanding when that shift comes and what it does for risk assets. It’s very attractive.”
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