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Episode 28

The global solvency crisis

Published on: May 13, 2020 • Duration: 33 minutes

This week we look at how a solvency crisis will emerge out of the hope phase of this economic shock, in a wide-ranging interview with Real Vision’s CEO and co-founder, Raoul Pal. Government accommodation has helped to offset the initial liquidity shock, but balance sheets have been impaired at the household, corporate and government level.

  • Roger Hirst [00:00:00] Back in January, when Coved-19 was still considered to be an isolated incident within China, Raoul Pal of Global Macro Investor was warning that its impact was about to go global and that the underlying fragility of the economic framework would amplify the effects. He outlined a three stage process that he expected would unfold, and in this week's Big Conversation, I asked Raoul to recap his thesis and outline where we are in that cycle. 

    Roger Hirst [00:00:30] Well, good to see you again,. 

    Raoul Pal [00:00:32] Roger. Always good to see you. 

    [00:00:34] Great to see you. Now I just wanted to really drive straight into the very heart of the matter, because back in January, you talked very vociferously about what was ahead of us. And what was ahead of us was not going to be a quick event with a V, but something a lot more a lot more lengthy. I'd love to just before we kind of go into what's coming up in the future, I'd love you just to go back in to kind of explaining what you thought was going to be the first two phases of this three phase event, the liquidation, then the hope, and then we'll get on. But maybe just give us a bit of background on those first two parts of this puzzle. 

    Raoul Pal [00:01:10] Sure. I mean, the first part, Roger, before the Coronavirus stepping back into January, December, the world was already slowing down. So we'd already gone through a rate tightening cycle in the US, which had slowed things down. Then we'd had trade wars, which had slowed things down, world trade to go negative. Many of the ISMs and the PMIs around the world had crossed 50 and would start to show a weakness in the global cylce. So that was going on. And then the news of the Coronavirus starts. But we get an oil shock as well, as the oil price collapses with the oil war. So we've got kind of this perfect storm and then Covid on top as a black swan. What it's going to do, in my opinion, is it creates both a faster start to the cycle, which I call the liquidation phase, very typical example of that would have been the early days of 1929 where we had a liquidation event, or we have it many of the bear markets since the initial phase where everybody goes 'oh my God something's changed'. So that is the liquidation phase which we got to into March as the understanding that the virus was spreading around the world and that worse was to come. Then the hope phase is as the market starts to look forward and say, OK, we understand this virus now, we kind of think the worst is behind us, we've seen the European case count falling, we've seen Asia doing okay, so let's look forward and look towards the reopening and the hope. The hope. Can we go back to normal? 

    Roger Hirst [00:02:44] And I think just before you go there, I mean, what is also happening is what you said before is that this was a fragile world that we had, and maybe something that we'll probably revisit later on this conversation is that if you looked at the U.S. equity market, everything looked fine and dandy, but beneath the surface, in fact, may be in fact, the equity market was actually a reason or an explanation of things below the surface, weren't that well, which is why the Fed was doing what they're doing. Maybe can you explain, you know, how some the signals that we saw, a lot of people thought the world will look pretty good coming into this. But actually underlying it, you say that it was actually quite fragile, and yet the equity market was doing well and which in some ways what we're seeing again today. 

    Raoul Pal [00:03:20] So if we think about what asset prices move around most according to the economy. So we call them macro instruments. What are the most macro insurance of all? Well, firstly it's interest rates. They tend to just move up and down with inflation expectations and GDP growth roughly, with some forward elements. So bonds had started pricing in rate cuts back in August, knowing that things were bad back in July, August, they started pricing cuts and we started to get cuts and then they continue to price in more cuts when the Fed said, 'oh, we're just done with them' with just a gentle tap on the brakes, and the bond markets said no, there's no gentle tap on the brakes, you're doing a full cycle. So the bonds were there. The dollar had been going higher, which was also showing that there was probably a slowdown in the offing. And the commodity markets were falling. Equities were the only thing at the highs. And that, I think is a function of two things is, equities tend to me the most sentiment and emotionally driven of all instruments. So they tend to be less macro. And also they're driven by certain flows. And the equity market has basically two structural buyers. One is the corporations who are buying back their own shares, and secondly were basically the passive index flows generally of the younger generation, because the baby boom generation had been starting to divest of equity assets overall. So those two buyers were skewing all of the indices towards the top largest stocks because they were also the ones buying back their own shares. And that kind of party all stopped in one go when all the corporations suddenly realized that they shouldn't be spending their money buying their own shares. They probably need to keep some cash to pay their debts or even pay their staff. 

    Roger Hirst [00:05:07] And so going forward, I mean, in some ways, the most important part to understand about this is that we've seen liquidation and a liquidity issue. But you're talking about a solvency crisis on the horizon. Could you explain that? Because that really very much that's sort of the nub of what is going on here. 

    Raoul Pal [00:05:24] Yes. So a liquidity crisis is what everybody understands from 2008. The banking system suddenly doesn't have enough money to pass around to all the people who need the money. And there's not enough flowing of money through the system, and that becomes liquidity. And what happens in that situation is everybody sells anything to raise cash. So when the Fed do multiple trillion in March, and also the government with their fiscal stimulus give money in people's pockets, that's basically a liquidity event. So they're just going to put money back into the money markets and make sure that things are operating okay. The bond market stopped working for a period of time and that's a huge signal for the world. You need the bond market to work. So they got the bond market basically working by injecting liquidity. Solvency events is different. Liquidity is no access to capital. Solvency is no access to cash flows. So if you think you as a householder and you have a mortgage. The only way of paying that mortgage is to have an income. If you don't have an income, or if your income is less than your mortgage, you default on your mortgage. And the same is true of corporations. Even if somebody kept lending you more money, it doesn't help you because you can't pay the cash, you're up to here. That's a solvency event. And when we've got record amounts of debt both at corporate level, household levels and also in foreign dollar denominated debt. So foreigners have borrowed 12 trillion, there's a bunch of people who really need that cash flow to pay those debts. And in a slow economic growth environment that goes on for a longer period of time, they're not able to pay their debts easily. And that's a solvency event and that it doesn't help the Federal Reserve putting money into the system because you as the homeowner who's taken a hit on their income or doesn't have a job, still can't pay. You not going to borrow more money. 

    Roger Hirst [00:07:21] And then the pushback that I know you always get. And it's sort of, you know, and some people say, is this a valid one? And it's not just that there's going to be QE infinity, which is the monetary side, but there is a fiscal side coming as well. But as I understand it, you see that the hole that's opened up, has been many, many years in the making is just so vast, that it doesn't really matter how much these guys do, they just won't be able to do it quickly enough to offset this coming kind of balance sheet issue across corporate households and the rest. 

    Raoul Pal [00:07:48] So if you look what's just happened, we know we've got one of the worst quarters in history still to come, that a quarter between and it's not the actual calendar quarter, but the quarter between call it February, late, Feb, when everyone started to figure out what was going on, till mid-March, that whole period. I don't know what the loss of GDP is for the U.S. economy, but it's going to be an order of magnitude of 10 percent. Okay, so all of the fiscal stimulus that's happened is basically papering over that loss of income that happened over that period, because that's what the that's what the government did, they said,  'you lost income, you lost income, you lost income, you lost income, you lost income. Here's some cash'. Good. OK. That helped everybody. It was important. The problem is, is what happens if the economy's slow in the next three months? 'You can have some income, you can have some income, you can'. And then the next three months. OK. I don't have enough money to give you income. It becomes, it becomes very difficult politically to give away that much capital. And we're already seeing that in the US. So, you know, most governments in Europe, particularly they've gone through about 20 to 25 percent of GDP. They've they've added in deficits. And we're going to have a fight in Europe over this, too, now. We've got to go to the E.U. and say, well, the ECB is buying our bonds to help us out and the EU is going to go. Yes but you're very naughty because you've beaten the 6 percent max, the 3 percent Maastricht criteria, the 6 percent Maastricht criteria. It's an impossible situation for everybody. So my fear is governments can't paper over the cracks for longer than three to six months. So they're going to have to change eventually to a much different form of fiscal stimulus, which is basically rebuilding of the nation. And I don't see that happening for a long time because the order of magnitude, if I'm correct and we go to a solvency event, you kind of have to rebuild the global economies like a Marshall Plan or a New Deal. And that's tens of trillions of dollars. 

    Roger Hirst [00:09:49] And so are you seeing, expecting the consumers here are effectively going to change their behavior, because so far what's happened even through Great Financial Crash, even with the mortgage situation, with the dot com situation, the consumer always bounced back. They they're always able to just manage. You know yields were pushed lower, debts were pushed out. People manage to just hold on. This time around, it looks like the consumer is going to have to address this balance sheet scenario that has built up over the last 20 years. 

    Raoul Pal [00:10:19] So break down the consumer in the Western world. It's pretty much the same everywhere. But the problems are more extreme in some countries. So the issue is there's the baby boomer population, the postwar generation who are all at retirement age in many places in Europe, that they're well into retirement age. And the US is a slightly younger population, but basically it's retirement age, massive group of people, I don't know what it is across the entire Western world, I'm guessing about 150 million or so huge numbers. So those people have hit retirement and their investment pools have been hit by this event. Now the stock market's rally back up, so it's helped a bit. But credit spreads and bond yields going to zero has meant that they've got a huge future hole in their entitlements, so they stop spending. You know, and I've always talked this story about my father when he retired. You know, he retired when bund yields in Germany were 4.65 percent. He retired in Spain. He bought bunds, he thought everything was fine. Ten years later, bund yields are at zero. And he's like, oh, my God, do I have enough money to survive? Depending how long I live for. And so he his consumption patterns collapse I don't know 60, 70 percent. So I think that's an issue from that generation. They're going to get hurt by all of this. The other generations, the millennials, well, they were born late 80s when they were young as teenagers, they saw the first crisis in 2001. Then they got to university and they graduated in the middle of the next crisis. These guys have never really been given a break and they've only just started putting money in their 401K in the US, and that's the system of investing for their pensions. And it's the same across Europe. And now they're going to lose faith in this whole system and they realize that they have student loans up to here, they have car loans up to there, and they're trying to get on the housing ladder and they can't. So I dont see a world where we return to consumption. This is this is quite scarring thing. It's like a war that's just gone on and we're not finished. 

    Roger Hirst [00:12:18] And so this must be in some ways why you're taking the side of view with with things like M2, because we are seeing M2 money supply exploding everywhere, and there is a very strong argument that if you see M2 explode, GDP falls then the velocity of money collapses, which is deflationary. But on the other side of that sort of coin is people say, well, you have this monetary inflation that's faster than kind of real output, you're going to see inflation. But it sounds like even if that inflation is coming, it's so far down the track that we've got this massive bust for the next few years before then. 

    Raoul Pal [00:12:50] Just think of it in these terms, right. Commodity prices, if you lose, use the the Reuters Commodity Index, which are the longest data series of all. When you look at that it's broken an enormous top pattern. The price of commodities is falling and it looks like it's going to continue to fall until this cycle is done. It's taking out basically the entire China secular, you know, the commodity super bull market. So it's going to take that out. But we know we're devaluing money as well, because we can see that all the fiat money, whether it's pounds, euros, dollars, yen, Swiss franc, are all falling against gold. And we know that because they're all printing money. What we've actually got is a weird world that we haven't had since the 1930s, where all currencies are falling in value. But commodities are falling more than the currencies. That's how deflationary this is. I can't express how deflationary it is when you've got currencies falling and commodities are actually falling more. Does that make any sense?  It's a different way of looking at it. 

    Roger Hirst [00:13:57] Yes. No, absolute. I think it makes perfect sense, which actually then brings me on to, I guess the next part of this, which is we worry about or how do we play it, because there's this price discovery issue we now have, which is the corporate bond market in the U.S. is distorted, there is an implicit distortion in some parts of the equity market. There is a kind of insinuated yield curve control going on in a lot of bond yields globaly. So how do you play this? What markets are the best ways to express? 

    Roger Hirst [00:14:27] Well, there's one there's one market bigger than everybody. It's bigger than the Fed is bigger than the BOJ, it's bigger than the ECB. It's bigger than everybody. And that's the currency markets. The currency markets is dominated like no other time in history by one currency, the US dollar. So it's not a reserve currency. It's the dollar standard. It's like the gold standard of the past. The dollar is everything. The problem is here, is if the dollar is everything and everybody's borrowed a lot of dollars and we talked about the cash flow and suddenly we don't have as much cash flow, then we have a real problem because everybody needs those dollars and there aren't any dollars around. So I referred to it like as a game of musical chairs, everybody trying to get the dollars. And when the music stops, the weakest creditor has to walk away. So we've seen it with Brazil, we've seen it with Argentina, we've seen it with a bunch of places, and that will spread because each time a chair gets taken away, as more cash flows diminish, it becomes harder to get those dollars and it will spread to those corporations in China, India, Brazil, South Korea, all of those places, that borrow, the European banking system. So what it creates is almost a perfect storm for the dollar to rise. And if you also think of the cash flows of the world, cash flows, global trade, which is negative and cash flow is also selling commodities. Most cash flows in the world, world trade terms are basically selling oil, copper, steel, agricultural commodities. All of those are falling. So you're getting less dollars every day. So it is today really incredible set up, that the Fed can't really do anything about. 

    Roger Hirst [00:16:16] And in terms of that that dollar dynamic, in some ways this is the key because it's the apex predator of global financial markets. And if you see, and people talk about the printing of the Fed, but if the Fed prints money and then the Bank of Japan and then Europe, if everybody tries to devalue, then no one devalues. But you also look at it in terms of the overall pool of cash and therefore the relative size of printing vs. effictive the overall transactions. And that is a very, very different story in terms of how the size of the Fed's balance sheet expansion really is in the real world. 

    Raoul Pal [00:16:46] I stumbled across it by accident about a week ago. I was going through the BIS, the Bank of International Settlements web site, and I realised and I knew obviously, as we all did, that the dollar's like 70 percent of the global system. But then I was looking okay, so the rest is split between the euro and the yen and the pound and Swiss franc and Aussie and... I thought, well, it's obvious that a trillion dollars of stimulus from the Fed, is worth a lot less in terms of currency debasement than a trillion dollars from the ECB. Because of the size of the markets. So I realised a trillion from the ECB was basically 3 trillion from the Fed. So it's almost impossible for the Fed to catch up with the BOJ and ECB. So it means that they always have the ability to weaken their currencies more so. And that's basically been the trend since 2012, 2011. They all managed to weaken their currencies because the Federal Reserve, the dominance of the dollar has made it almost impossible for them to do it. 

    Roger Hirst [00:17:51] And whilst we are waiting for these currencies, I mean, we've seen very low volatility in things like global FX positions, but there are some emerging markets where this has been happening quite dramatically already. So what are those? What are the sort of places where if you can't wait for the euro and the yen to actually break, which might be, you know, six months or more down the road, although the euro is nearly there. Where are the places that people can actually go, 'right. I can do this now'. 

    Raoul Pal [00:18:13] I prefer the patience trade. I think the euro is the best set up of of all because we've got some structural problems in Europe that are coming to the fore. Something called the European Union is not acting like a union right now in times of extreme adverse trouble. When member states have gone and said, listen, we should mutalise this debt, we need a helping hand and Germany and Holland have said no. So then it's kind of a it's a European amalgamation of independent states who are out for themselves right now. That doesn't help the situation, so that's going to have to get tested and we've always known these structural deficiencies, but it's likely to affect the euro. The Europeans are about to start their printing to help all of these governments. So that's going to affect the euro. So actually, I like that. But on the other hand, if you want to look at other currencies that are moving fast. Well, we've seen Brazil for the reasons because they their two biggest exports are agricultural commodities, no it's just basically commodities are the top five of their exports. Well, cash flows have fallen 60 percent in all commodities and in some cases more. So suddenly, Brazil can't pay its debts. It's the musical chairs game. We've seen the same with Turkey. Turkey has a lot of dollar denominated debt. The other places where we've seen some weaknesses. India, for example, as well. Argentina, anywhere that's got debts, need dollars. The interesting one is all always going to be China within this equation because China actually has the most dollar denominated debt of all, but their currency is pegged. So there's a chance that maybe that they move alongside the other emerging market currencies. We don't have to look for a dramatic devaluation of the RMB, but could it move 10 percent from here soon? For sure. 

    Roger Hirst [00:19:51] And then in terms of the bond markets, I'm quite interested in that because we're looking at potentially a market which certainly yields seem to be capped on the upside, not just by the Fed, but by the dynamics of pension funds, etc.. But do you think that the market or that the yield curve will see the frontend move down first, or do you think we will actually get another inversion where we could see the five year, maybe ten year go negative first, which then forces the hand of the Fed to go, okay well, you know, we can go into negative rates at the front end as well. Or do you expect the Fed to break first and go go into negative territory on U.S. rates? 

    Raoul Pal [00:20:26] I think the curve is going to steepen as it moves towards negative rates. So I think it's going to automatically adjust itself. Forget the Fed not wanting to go to negative - they don't get the choice. The bond market has all the muscle here, and the easing it happened in Europe in 2012. Two year Schatz in Germany went negative. But it took 18 months for the ECB to have the courage to do it. So I think there's a similar dynamic coming, whether it's 18 months or not. I think the bond market is all going to shift. We already saw Fed funds rate negative just marginally the other day. And I think with any sniffing out of this deflation thing or slow growth, we will see negative rates at two years. And in the end, we should see two years at like negative 1 percent. We should see five years at negative a half. We should see 10 years at somewhere like zero. And then you've got a steeper curve. But it's implying something different. The banks need the steep curve, but it's probably only get it in negative rates, which is not very helpful. 

    Roger Hirst [00:21:33] And the catastrophic kind of scenario with all this is that real yields could start to explode higher. 

    Raoul Pal [00:21:38] Yeah, this is the really troubling thing. So step back ot of all of this. What's been freaking the central banks out of you since you and I were working together at Goldman in the late 90s? The thing that started to freak the central banks out that they saw in Asia in 1998, was what happens when rates get to close to zero and deflation sets in? That only happened in the 1930s. And so they fought that tooth and nail, inflate, inflate, inflate. Stop that happening. But the problem is, is due to debt and demographics, that that natural interest rate kept falling. So here we are in the biggest recession. Well, in the UK, it's the biggest recession in 300 years, according to the Bank of England. And we've got rates at zero. And commodity prices are falling and the business cycles falling and expenditure's falling. So deflation is coming. So looking at a lot of forward looking charts that I use, I would suggest that negative 2 to negative 3 percent CPI is likely in the US and probably somewhere around elsewhere in the world. Well, with bond yields at zero, it means real yields are about 3 percent. So that's tightening rates above where they were in 2000 and 2001 in the middle of the biggest crisis in three hundred years. That is what the central banks have feared all along. And as mainly in life, the thing you fear the most is the thing you make happen out of your avoidance tactics. And here we are. So I don't know how we avoid this, but that's why I think we're going to negative rates. 

    Roger Hirst [00:23:20] This is a world where we could see I presume we could see massive monetary inflation and deflation in real economy at the same time, is basically what you're saying? 

    Raoul Pal [00:23:28] And exactly what happened in the 1930s. So they were printing money. They were buying bonds. They were supporting the equity market, doing a bunch of other issues. They had fiscal stimulus going on and yet prices were falling. And eventually, and the problem was, lo and behold, obviously, there was too much debt in the system. They had to renegotiate all of that sovereign debt, which was the debt owed by France, the U.K., Germany and all of that post-World War 1. All of that got written off in the end. There was a massive fiscal stimulus, but the key thing was through that whole period of that deflation is the US was pegged to gold. And it was too strong. It kept accumulating all the world's gold. So with the currency too strong, what you got was massive deflation. And here we are with the same set up. The dollar standard is basically the world's reserve currency. It can't move away from it, it's too strong. It's attracting all the world's capital flows and that's making it worse for the US and the world. So however much monetary and fiscal stimulus to throw at this, you've got that big issue to solve. So there's a dollar, debt, demographics and deflation story. It's now the 4 Ds. 

    Roger Hirst [00:24:44] And there's probably a couple of ways that you can play this. Because there's some of this and also because some people are still gonna be skeptical that the super printing this QE infinity doesn't create inflation. But the path to if we could ever get there is actually paved with the same trade, isn't it? Because there's a couple of trades which deflation during monetary inflation will still work out in the medium, short, medium and maybe in the long term. What are those? 

    Raoul Pal [00:25:09] Look, I mean, this this is a trade that's so superior. I mean, I like the dollar. I think that's an extremely superior trade. But if you just want one simple thing, one true north that works in every scenario, because a lot people think I'm going to be wrong on the dollar and the dollar collapses because of monetary printing. I get it. So that scares a lot of people away. But there's one trade that everybody agrees on, which is interesting, which is, okay, Roger, you think it's a massive inflation, you tell me you need to buy gold because it's inflation. And I say it's a massive deflation, the central banks, the only way they can they can try and control it is to print more money. And it's not going to work, but they're going to keep printing and it's gonna devalue fiat money versus gold. So here we are, an inflationist and a deflationist and we both think we should buy gold. Now, if you're a little bit racy, we might agree also, that you might wanna buy bitcoin. Because at the end of this we have what's known as the dollar standard. Which doesn't work for the world any longer. Mark Carney when he was at the head of the BOE, we've heard it from Benoit Coeuret from the ECB, we've heard it from the BOJ, we've heard it from everybody, the BBOC we can't operate under this system any longer, we need to create a new system. And they are talking about moving to a digital currency system as a start. The point being is if I'm right and the dollar goes up, or you're right and not that this is your view, but if if you were the inflationist, well the chances again of Bitcoin, which is a super hard currency, I mean, yesterday it quantitatively tightened. While the world was quantitatively easing fiat currency, that's an extraordinary difference. So that I think gives you an option on the future of the financial system, too. So, you know, those are the those are the obvious bets to me are; yes you can bet on bonds going to negative interest rates. You can bet on the dollar rising, or if you want a kind of relatively straightforward bet for the next three years of where do I put money and i'm relatively safe, gold. If I wanna make a ton of money, if I'm really right, bitcoin. 

    Roger Hirst [00:27:08] And just around this out, kind of just in terms of timeframe, there's a few there's a few past examples in terms of where we think this could go and it's probably the next few months are going to be absolutely critical. Would that be fair? 

    Raoul Pal [00:27:21] Yes. We need to know what is going back to work look like. Right there's a bunch of assumptions that were in the market in the hope phase. But I'm looking at the forward looking data in China and around the world and it looks like Asian economies aren't going to fully reopen, that the trend rate of growth is still negative. You get a first about bounce back in the first month because it was great, I can do this. But the reality is everyone's a bit scarred, and that I better keep my income, maybe we shut down again. We've seen that in in Japan and Singapore and other places. So maybe I just keep hold of it. Employers are slower to take back staff that they let go of. And before you know, it we are in reduced growth world. So that transition from June, July, August, I think will give us everything. But I know one thing I'm armed with one secret weapon, is the bond market will tell us first. Because it's always right on stuff like this. So just keep an eye on, let's say, five year rates or two year rates and watch them go towards zero. The closer they go to zero to the higher, the probability is that the trend rate of growth is not going to return back to normal and we've got a longer recession ahead. If it starts flipping to negative rates, which is not very far away, well, then it means that growth rates, that deflation is probably the base case for the bond market. 

    Roger Hirst [00:28:47] Excellent. Raoul thank you very much. And that's a great way to finish it. Very clear and very sort of simple, a simple kind of thing to have on the radar to kind of understand where we're going. Thank you very much. 

    Raoul Pal [00:28:58] Not at all. 

    Roger Hirst [00:29:04] There's also a whole host of things we can take from that, but the three things that stuck out for me were, were firstly, it's the liquidity turning into a solvency crisis. So liquidity, the need to get cash now. Obviously, as people were fighting for cash, that 'dash for cash' that we've talked about before. That was the liquidity crisis a bit like 2008 and governments now have worked out how to deal with that sort of crisis. So they've gone to the usual rule book of quantitative easing, et cetera. But I think the real issue here is the solvency crisis that's coming. Now what's that about? It's balance sheets, balance sheet impairments, the household level, the corporate level, and ultimately the government level. Households will be thinking that future revenues - that's wages or even employment, is impaired and therefore they'll be retrenching today, saving more, paying down debts and therefore $1 that's coming to them from, let's say, the government fiscal stimulus will not become $1 going back into consumption. So consumption drops. The corporates will be anticipating that with declining wages that their future revenues will also fall. They will be thinking about cutting jobs and reducing wages, reinforcing that negative loop. And then governments which have already anticipated this and have therefore done the fiscal and forced the central banks to do more of the monetary through quantitative easing, they will ultimately have balance sheets impaired. We can see this burgeoning debt to GDP already, and they will be looking to try and claw some of that back through taxes. Now, that probably means that things will therefore be deflationary. And that was the second thing. The inflation argument is is not all pervasive, but because you've got a massive monetary and ultimately fiscal stimulus, the expectation is that this will be inflationary. But the hole, the pit that's already been dug is only being filled up at the moment. In fact, we're not seeing a stimulus, we're seeing stabilization from this liquidity. A stimulus needs to take growth beyond where it was before, and that needs a hell of a lot more. In fact, I think that's got to have to be or going to have to be a much bigger bailout in almost every region, something that we talked about about a month ago. So that was the second thing. And then the third thing, again we've talked about this, is that in a world where we are seeing assets being distorted, particularly in the US, corporate bonds, equity markets with the Nasdaq near its all time high, once more, those are financial assets, equities and not the economy and U.S. equities are not global equities. U.S. equities are being pumped by the anticipation of liquidity and in some ways that immediate liquidity going through some of the hedge funds via those banks. But that's not the real economy. That's not really the way to play this, that's not that's not the way to play the macro. The dollar is the way to play the macro. Raoul was talking about the euro, the euro sitting on this very, very big support line. So that could certainly be something to watch over the medium to long term. Volatility still remains quite low. The CVIX is quite low. And that means that maybe the euro will still take some time to grind out to a lower level. But we can already see this happening in a lot of emerging markets. A few weeks ago, we talked about the Brazilian real, we talked about the South African rand, we talked about the Mexican peso. The one that's really moved so far is Brazil. That's still somewhat the one to watch, but I think across that emerging market FX space, there is going to be a lot more weakness because these aren't central banks or these areas don't have central banks, that can have as dramatic a response as places like Europe, Japan and the US. They can cut rates, but that only has a limited impact. Ultimately, these are countries which need to effectively export their way out of a crisis. So emerging market currencies looks like the place to play the global macro and ultimately the euro and eventually maybe the yen, also near big levels, those might be the ones to go as ultimately the dollar tries to push higher as this real dash for cash in the world's economy and the world's real economy takes hold and drives that demand for dollars higher from here over the next weeks, months and maybe even years, although that might generate a significant response from all global central banks.