Macroeconomics expert Raoul Pal says risk assets could witness massive eruptions if the US dollar continues to weaken.
In a new video, Pal tells his 242,000 YouTube subscribers that if the US dollar index (DXY) falls further amid an improving business cycle, risk assets such as stocks and crypto could experience an extended bullish phase.
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“So what happens is when the business cycle picks up, there’s more disposable income and businesses have more investment income and that gets driven out of the risk curve always…
And I think the inverse to the business cycle being so low for so long will be the flip side of the cycle will be longer than people expected because we’ve got this slight dislocation still working through post-Covid that then extends the business cycle…
But if financial conditions keep moving, if they really have done some sort of Mar-a-Lago Accord, and they get the dollar [DXY] below 90. Okay, then we’re going on further and yeah, maybe it’s a full bubble cycle then.”
The DXY, a measure of the value of the dollar relative to a basket of six other leading currencies from major economies, is currently at 98.
Pal further says an increase in global liquidity could also act as a bullish catalyst for asset prices amid high government debt levels.
“Just using the liquidity framework, the business cycle framework, the financial conditions framework, it’s all suggesting that the probability is because they need to roll the debt, they’re going to have to increase more liquidity, and this is just going to drive assets up strongly.”
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