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Macro Investing, Hedge Funds and Crypto! Ft. Real Vision founder Raoul Pal | Superteam Podcast

By Superteam

Published on 2022-10-22

Real Vision founder Raoul Pal discusses macro investing, crypto adoption, inflation vs deflation, and the future of finance in this insightful Superteam podcast episode.

The notes below are AI generated and may not be 100% accurate. Watch the video to be sure!

Introduction to Raoul Pal and Real Vision

Raoul Pal, co-founder of Real Vision, joined the Superteam podcast to discuss macro investing, hedge funds, and the future of crypto. With a background in finance spanning over three decades, Pal has become a respected voice in the world of macro investing and cryptocurrency. His journey from Goldman Sachs to running his own hedge fund, and eventually founding Real Vision, provides a unique perspective on the intersection of traditional finance and the emerging crypto ecosystem.

Real Vision, founded by Pal in 2014, aims to democratize access to high-quality financial knowledge. The platform has become a go-to resource for both retail and institutional investors seeking to understand macro trends and their impact on various asset classes, including cryptocurrencies. Pal's early recognition of Bitcoin's potential as a macro asset has positioned him as a thought leader in the space, bridging the gap between traditional finance and the crypto world.

Raoul Pal's Journey in Finance

Pal's career in finance began at Goldman Sachs, where he ran the hedge fund sales business in equity and equity derivatives. This position allowed him to learn from and interact with some of the most renowned macro investors of the time, including Paul Tudor Jones, Stan Druckenmiller, and George Soros. Pal describes this experience as "extraordinary," likening it to "being taught acting by Robert De Niro."

After his time at Goldman Sachs, Pal moved to GLG Partners, the largest hedge fund firm in Europe at the time, where he started and ran the global macro hedge fund. This experience provided him with invaluable insights into investing across all asset classes based on economic cycles. Pal explains global macro investing as "this amazing 3D global jigsaw puzzle that you can never solve or you do for a short period of time and then it becomes super complicated."

Seeking a change of pace and a better quality of life, Pal eventually moved to Spain's Mediterranean coast. It was during this time that he started writing Global Macro Investor, a prestigious service aimed at the world's largest hedge funds, sovereign wealth funds, and other major financial institutions. This venture would become the foundation for his future endeavors, including Real Vision.

The Genesis of Real Vision

The idea for Real Vision was born out of Pal's experiences during the global financial crisis of 2008 and the European crisis of 2012. Pal had successfully foreseen both events, but he was troubled by the fact that many people were unaware of the impending crises. He recalls people approaching him and asking, "Why don't we know?" This realization led him to create Real Vision with the goal of democratizing access to high-quality financial information.

Pal explains, "What really upset me was people came up to me in the street and said, why don't we know? I'm like, this does not feel good. Why does some of us have all the access to the information and others get numb?" This desire to level the playing field in financial information became the driving force behind Real Vision's mission.

Crypto and Macro: A Convergence

One of the key insights Pal shares in the podcast is his early recognition of the potential convergence between macro investing and cryptocurrency. He wrote the first-ever macroeconomic strategy paper on Bitcoin in 2013, investing when the price was around $200. Pal's thesis was that macro and crypto were destined to meet because the only answer to macroeconomic stress is printing money, which drives down the purchasing power of currency.

Pal elaborates on this point, stating, "My thesis always was macro and crypto were going to meet because the only answer to macroeconomic stress is printing money and printing money actually drives down the purchasing power of a currency." This insight has proven prescient, particularly in light of the massive monetary expansion seen in response to the COVID-19 pandemic in 2020.

Understanding Bitcoin as a Hedge

A common misconception about Bitcoin is that it serves as a hedge against inflation in the traditional sense. Pal offers a more nuanced perspective, explaining that Bitcoin is not necessarily a hedge against rising consumer prices, but rather against the debasement of currency and the loss of purchasing power over time.

To illustrate this point, Pal draws a parallel with gold's role in Indian culture: "Why are the Indians by gold? So when you look at gold in rupee terms, it's gone up. What has the rupee done over the last 20 years gone down? Why? Because of inflation and central bank policy and those kind of things. Indians by goal because it maintains their purchasing power over time."

He argues that Bitcoin serves a similar function in the digital age, providing a scarce asset that can preserve purchasing power in the face of currency debasement. This perspective helps to explain why Bitcoin and other cryptocurrencies have performed well during periods of expansionary monetary policy, even if they don't always move in lockstep with traditional inflation metrics.

The Dollar Dominance Paradox

One of the counterintuitive developments in recent years has been the strengthening of the US dollar despite massive monetary expansion. Pal addresses this apparent paradox, explaining the mechanics behind the dollar's continued dominance in the global financial system.

He points out that while the US accounts for only 25% of global GDP, the US dollar is used in 87% of all global trade transactions. This creates a constant demand for dollars that often exceeds supply, particularly during times of economic stress. Pal explains, "So when things get scary, you go to the safest asset, which is the dollar. But there's always a scarcity of dollars because the US is only 25%. So it can't ever generate enough dollars for the system until it massively prints dollars and then gives them out to people."

This dynamic helps to explain why the dollar can strengthen even in the face of expansionary monetary policy, as global demand for dollars can outpace the increase in supply. Pal's insight highlights the complex interplay between global trade, monetary policy, and currency markets that shapes the macro environment.

Inflation vs. Deflation: A Macro Perspective

One of the most hotly debated topics in macro investing is the outlook for inflation versus deflation. Pal offers a nuanced view on this issue, presenting arguments for both scenarios while ultimately leaning towards a deflationary outlook in the long term.

The inflationary argument, which Pal acknowledges as the current dominant narrative, suggests that de-globalization trends, supply chain disruptions, and the transition away from fossil fuels could lead to persistent inflationary pressures. Proponents of this view argue that these factors could result in a "new regime" of higher inflation and interest rates.

However, Pal presents a compelling case for why deflationary forces may ultimately prevail. He cites several key factors:

  1. Aging demographics in Western countries, leading to reduced spending and economic activity.
  2. The continued march of globalization, albeit in a potentially more regionalized form.
  3. Technological advancements that drive down costs across various sectors.

Pal emphasizes the deflationary impact of technology, stating, "Basically, everything that gets digitized goes to zero in value. I mean, everything. So cloud computing, computing power, computing chips. I mean, you name it, televisions, mobile phones, everything goes to zero."

He argues that the combined effect of these deflationary forces, particularly the exponential advancement of technologies like artificial intelligence, robotics, and green energy, will likely outweigh inflationary pressures in the long run.

The Role of Central Banks and Monetary Policy

Throughout the discussion, Pal emphasizes the crucial role that central banks and monetary policy play in shaping the macro environment. He points out that the actions of central banks, particularly the US Federal Reserve, have far-reaching consequences for global markets and economies.

Pal explains that the current tightening cycle, where central banks are raising interest rates and reducing balance sheets, is creating a "game of musical chairs" in global markets. As liquidity is withdrawn from the system, asset prices across the board tend to fall, while the US dollar strengthens due to its relative scarcity.

However, Pal suggests that this tightening cycle may be relatively short-lived. He anticipates that as economic conditions deteriorate, central banks will be forced to reverse course and return to expansionary policies. This cyclical nature of monetary policy creates opportunities for macro investors who can anticipate these shifts.

The Future of Crypto Adoption

Despite the current bear market in cryptocurrencies, Pal remains bullish on the long-term prospects for crypto adoption. He cites data showing that crypto is experiencing the fastest adoption rate of any technology in history, outpacing even the internet in its early days.

Pal states, "Crypto right now is the fastest adoption of any technology the world has ever seen. It's twice the adoption speed of the internet." He argues that this rapid adoption, combined with the ongoing development of blockchain technology and its applications, positions crypto as a key asset class for the future.

Furthermore, Pal sees the integration of traditional finance and crypto as inevitable. He believes that as more institutional investors enter the space and as regulatory frameworks evolve, crypto will become an increasingly important part of the global financial system.

Real Vision's Expansion into India

A significant portion of the podcast discussion focused on Real Vision's expansion into India. Pal, who is half Indian himself, sees enormous potential in the Indian market, particularly given the country's young demographic and growing interest in finance and investing.

Pal explains the rationale behind Real Vision India: "The reason I started Real Vision India, apart from being half Indian is that there are so many young people who need education. And the quality of the YouTube stuff is pretty crappy." He aims to provide high-quality, accessible financial education to India's growing investor base.

The expansion strategy includes creating India-specific content, building a community through meetups and online platforms, and developing shows that bridge Eastern and Western perspectives on finance. Pal emphasizes the importance of making this content accessible, with plans to offer both free and premium options tailored to the Indian market.

The Future of Finance and Real Vision

Looking ahead, Pal shares his vision for the future of finance and Real Vision's role in it. He describes an ambitious plan to create a "super community of finance built on the super platform of finance." This vision involves bringing together various communities within finance – from macro investors to crypto enthusiasts, from students to asset managers – and providing them with a comprehensive suite of tools and resources.

Pal outlines plans for Real Vision to evolve beyond a content platform into a full-fledged ecosystem that includes features like charting, portfolio tools, AI-driven insights, and potentially even a native token. He envisions Real Vision as a one-stop-shop for financial professionals and enthusiasts, stating, "I want you to live your financial life entirely on Real Vision."

Advice for Young Finance Professionals

For young people looking to start a career in finance, Pal offers valuable advice. He emphasizes the importance of focusing on secular bull markets – areas of the economy and finance that are poised for long-term growth. In the context of India, he sees tremendous opportunities in fintech, crypto, and asset management.

Pal advises, "Go where the money's flowing. So when you've got a group of 28 year olds of the size of the Indian population, they all want to aspire to that vision of the future sales to be wealthier than their parents and to have a house and do all of that stuff. That whole highly incentivized to invest. So that industry is a phenomenally good industry to get into over time asset management, fintech, all of that crypto."

The Importance of Quality of Life

Throughout the podcast, Pal repeatedly emphasizes the importance of quality of life in his career decisions. From his move to Spain to his current residence in the Caribbean, Pal has prioritized lifestyle alongside professional success. He encourages others to think in terms of "accumulating lifestyle" rather than just accumulating wealth.

This perspective informs not only his personal choices but also his business decisions. Pal sees the potential for crypto and blockchain technology to empower individuals and improve quality of life on a global scale, which partly drives his enthusiasm for the sector.

Conclusion: A New Era in Finance

As the podcast draws to a close, it's clear that Raoul Pal envisions a future where traditional finance and crypto are deeply intertwined, and where access to high-quality financial information is democratized. His insights into macro trends, the potential of crypto, and the future of finance provide valuable food for thought for investors and finance professionals alike.

Real Vision's expansion into India and its evolving platform represent concrete steps towards realizing this vision. As the financial landscape continues to evolve, voices like Pal's will likely play a crucial role in helping investors navigate the complex intersection of macro trends, technological innovation, and global markets.

The conversation with Raoul Pal underscores the rapid pace of change in the financial world and the opportunities that arise from this evolution. Whether it's through understanding macro trends, exploring the potential of crypto, or leveraging new educational platforms like Real Vision, there are myriad ways for individuals to engage with and benefit from these changes. As we move forward, the ability to synthesize insights from both traditional finance and emerging technologies will likely be key to success in the new financial paradigm.

Facts + Figures

  • Raoul Pal has been in finance for 32 years, starting at Goldman Sachs where he ran the hedge fund sales business in equity and equity derivatives.
  • Pal wrote the first-ever macroeconomic strategy paper on Bitcoin in 2013 and invested when it was at $200.
  • Real Vision was founded in 2014 to democratize access to high-quality financial knowledge.
  • The US dollar is used in 87% of every trade transaction in the world, despite the US only accounting for 25% of world GDP.
  • Crypto is currently experiencing the fastest adoption rate of any technology in history, growing at about 160% per year compared to the internet's 80% per year in its early days.
  • Real Vision is expanding into India, with plans to create India-specific content and build a community through meetups and online platforms.
  • Pal predicts that crypto adoption could reach about 4 billion people in the next five years.
  • Real Vision is planning to launch its own token, potentially by the end of the first half of next year.
  • Pal sees culture becoming the new asset class, with music, sports, film, TV, book franchises, and fashion being tokenized using NFTs and social tokens.
  • The average age in India is 28, compared to 58 in the United States, highlighting the demographic differences and potential opportunities in the Indian market.

Questions Answered

What is global macro investing?

Global macro investing is an investment strategy that involves making decisions based on the overall economic and political views of various countries or their macroeconomic principles. Raoul Pal describes it as "investing across all asset classes based around the economic cycle." This approach considers factors such as whether economies are growing or contracting, and seeks to express these views through various financial instruments like bonds, currencies, equities, or cryptocurrencies.

How does Bitcoin serve as a hedge against currency debasement?

Bitcoin serves as a hedge against currency debasement by providing a scarce digital asset with a fixed supply. Pal explains that Bitcoin is not necessarily a hedge against inflation in terms of rising consumer prices, but rather against the loss of purchasing power of fiat currencies over time. Similar to how Indians buy gold to maintain purchasing power as the rupee devalues, Bitcoin offers a digital alternative that can potentially preserve value in the face of expansionary monetary policies that increase the money supply and potentially erode the value of traditional currencies.

Why has the US dollar remained strong despite massive monetary expansion?

The US dollar has remained strong despite massive monetary expansion due to its dominant role in global trade and finance. Pal explains that while the US accounts for only 25% of global GDP, the dollar is used in 87% of all global trade transactions. This creates a constant demand for dollars that often exceeds supply, particularly during times of economic stress. Additionally, as the global reserve currency, the dollar is seen as a safe haven asset during uncertain times, further increasing demand and supporting its value even in the face of expansionary monetary policies.

What is Raoul Pal's view on inflation vs deflation?

Raoul Pal leans towards a deflationary outlook in the long term, despite acknowledging current inflationary pressures. He argues that while factors like de-globalization and supply chain disruptions may cause short-term inflation, powerful deflationary forces are at work. These include aging demographics in Western countries, continued globalization (albeit in a more regionalized form), and technological advancements that drive down costs across various sectors. Pal emphasizes the deflationary impact of technology, stating that "everything that gets digitized goes to zero in value," and believes these forces will ultimately outweigh inflationary pressures.

What is Real Vision's expansion strategy for India?

Real Vision's expansion strategy for India focuses on providing high-quality, accessible financial education to India's growing investor base. The plan includes creating India-specific content, building a community through meetups and online platforms, and developing shows that bridge Eastern and Western perspectives on finance. Pal emphasizes the importance of making this content accessible, with plans to offer both free and premium options tailored to the Indian market. The strategy recognizes the unique demographic and economic characteristics of India, aiming to serve the needs of its young, financially ambitious population.

How does Raoul Pal see the future of finance and Real Vision's role in it?

Raoul Pal envisions a future where traditional finance and crypto are deeply intertwined, with Real Vision playing a central role in this ecosystem. He describes plans to create a "super community of finance built on the super platform of finance," bringing together various communities within finance and providing them with a comprehensive suite of tools and resources. This includes evolving Real Vision beyond a content platform into a full-fledged ecosystem with features like charting, portfolio tools, AI-driven insights, and potentially a native token. Pal's ultimate goal is for users to be able to "live your financial life entirely on Real Vision."

What advice does Raoul Pal offer to young people starting a career in finance?

Raoul Pal advises young people starting a career in finance to focus on secular bull markets – areas of the economy and finance that are poised for long-term growth. In the context of India, he sees tremendous opportunities in fintech, crypto, and asset management. Pal emphasizes the importance of going "where the money's flowing" and recognizing the potential in serving the financial needs and aspirations of India's young population. He views the finance industry, particularly in areas like asset management and fintech, as a "phenomenally good industry to get into over time" given the demographic trends and increasing financialization of the Indian economy.

How does Raoul Pal view the adoption rate of cryptocurrency compared to other technologies?

Raoul Pal states that cryptocurrency is experiencing the fastest adoption rate of any technology in history. He mentions that crypto adoption is growing at about 160% per year, which is twice the speed of internet adoption in its early days (which grew at about 80% per year). Pal predicts that at this rate, crypto could reach about 4 billion users in the next five years. This rapid adoption rate is one of the key factors behind Pal's bullish outlook on the long-term prospects of the crypto industry, despite short-term market volatility.

What is Raoul Pal's perspective on the tokenization of culture and community?

Raoul Pal sees culture and community becoming a new asset class, facilitated by blockchain technology and tokenization. He identifies key areas such as music, sports, film, TV, book franchises, and fashion as prime candidates for tokenization using both NFTs (Non-Fungible Tokens) and social tokens. Pal believes this trend will be a major driver of the next wave of crypto adoption, potentially bringing in billions of users and trillions of dollars in value. He views this as a transformative development that will reshape how we interact with and derive value from cultural products and communities.

How does Raoul Pal balance work and quality of life in his career decisions?

Throughout his career, Raoul Pal has prioritized quality of life alongside professional success. He emphasizes the importance of "accumulating lifestyle" rather than just accumulating wealth. This philosophy led him to move from high-stress positions in London to living on the Mediterranean coast of Spain, and later to the Caribbean. Pal encourages others to think about career decisions in terms of how they contribute to overall life satisfaction, not just financial rewards. This perspective also informs his business decisions, including his enthusiasm for crypto and blockchain technology, which he sees as having the potential to empower individuals and improve quality of life on a global scale.

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