Macro guru Raoul Pal says that a new wave of liquidity is set to arrive to financial markets, changing the climate for risk assets.
In a new video update with Real Vision analyst Julien Bittel, Pal forecasts that a number of different catalysts will boost global liquidity, which he thinks is the main driver of risk assets like crypto.
“We think that the Treasury runs down the Treasury General Account. We think the Fed stops QT (quantitative tightening). We think that the end of the reverse repo gets drained. We think that Fannie Mae probably gets Congressional approval to offer equity release mortgages, which could add trillions of dollars. We think there’s either tax stimulus or fiscal spending stimulus to come.
We also think that globally, the Japanese might intervene in their currency selling dollars which adds dollars into the global system. We also think that most countries will be adding liquidity as well. We think China needs to increase its liquidity.”
Pal also names the implementation of Basel IV, a new banking regulation that will require banks to keep higher levels of liquidity on hand, and the weakness of commercial real estate as other possible sources of liquidity.
“We also think Basel IV is coming next year which means the banks are buying more bonds, so we think there are a lot of sources of liquidity.
Another one is commercial real estate. Eventually, if it remains ugly enough, the Fed could create a special-purpose vehicle to put all these loans in. We’ve seen that historically in the past, particularly in the savings and loan crisis in the early 90s. That’s another method of liquidity. So there’s lots and lots of different avenues, and ones that we haven’t even covered.”
Pal recently called for an imminent “banana zone,” or a period when risk assets enter into dramatic rallies.
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