Macro Mondays — Episode Summary

Episode: Raoul Pal: What Happens If Trump’s Dollar Playbook FAILS?
Host: Andreas Steno Larsen
Guest: Raoul Pal (Founder, Real Vision and GMI)
Date: January 13, 2025

Overview

In this episode of Macro Mondays, Andreas Steno Larsen is joined by renowned macro strategist Raoul Pal for an in-depth discussion on the implications of a strong US dollar, the prospects for policy changes under a Trump administration, the global liquidity cycle, and concrete trade ideas. The episode is candid and entertaining, filled with expert insights, notable banter, and direct opinions on market action, with a special focus on actionable macro perspectives for 2025.

Key Discussion Points & Insights

1. The Strong Dollar — Drivers & Trump’s Playbook

• Current Context:
  • The dollar opened the week very strong, with global markets reacting nervously.
  • An ongoing meme bet: if EUR/USD breaches parity, Andreas promises to open an OnlyFans — a running joke to highlight how unattractive a breach is ("Literally nobody wants this." — Andreas, 01:06).
• Underlying Drivers ([01:35]):
  • Market fears of Trump administration’s tariff policies and overall trade approach are pushing both the dollar and rates higher (Raoul).
  • Parallels to the 2016-17 cycle, where Trump campaigned for a weaker dollar but initially saw strength before jawboning it down.
  • Trump’s team understands the importance of a weaker dollar for rolling debt and trade negotiations; using strong dollar as a carrot/stick in deal-making, especially with China (Raoul, 01:35–03:20).
• Structural Dollar Strength:
  • The world is structurally short dollars due to heavy dollar-denominated debt; when US liquidity is withdrawn, global demand for dollars spikes (“The dollar is structurally strong because the world is 50% in debt, in dollars, and there’s a shortage of dollars.” — Raoul, 04:23).

2. Liquidity Cycle and Monetary Policy Inflections

• Current Liquidity Landscape ([04:30–06:22]):
  • Waiting for liquidity injections: reverse repo facilities draining to zero, end of QT, possible TGA drainage.
  • Fed minutes suggest hesitancy to tighten post-QT, sparking debate about return of QE or unorthodox measures.
• Historical Parallels:
  • Charts and correlations between post-2016 and 2024 dollar index, global M2, and NASDAQ—current patterns mirror previous cycles closely (Raoul, 06:22–08:19).
• Timing and Political Gamesmanship:
  • Trump might use “blame game” tactics, letting the strong dollar linger to pin responsibility on Biden before acting (Andreas, 05:20).
  • Policy announcements potentially coming soon (“Scott Besson speaks on Thursday…it could be an obvious timing to say something.” — Andreas, 08:19).

3. Bitcoin & Crypto amid a Strong Dollar

• Technical Perspectives & Market Response ([09:34–10:53]):
  • Technical consensus points to a possible short-term drop to $70–80K range before a second-half rally.
  • Raoul believes the bottom may have already formed, using the 2017 analogy (“I think the bottom is in. I think it happened today.” — Raoul, 09:34).
  • Liquidity, not just technicals, is the main driver in the crypto cycle.

4. Sterling’s Fall & UK Liquidity Issues

• Crisis in the UK Bond and FX Markets ([11:14–12:30]):
  • Sterling’s sharp decline seen as a signal for the need for more UK liquidity.
  • Gilt market liquidity worse than at the time of the Liz Truss crisis; official reluctance to act due to inflation fears.
  • But “politics will trump all”: US and UK will be compelled to add liquidity by mid-year for political reasons (Raoul, 13:07).

5. Inflation, ISM, and Economic Cycle Outlook

• Short-Term Inflation Risks ([14:00–16:18]):
  • Hot December inflation prints expected in US and UK; but year-on-year effects and lagging components like housing may keep inflation above target.
  • Raoul expects inflation will ultimately undershoot due to rolling base effects and lingering high rates hurting borrowers.
• ISM Mysteries & Outlook ([17:08–19:26]):
  • ISM has stayed suppressed for unusually long; hypothesis: bifurcation between mega-cap tech (sheltered from rates) and the rest of the economy.
  • Longer-lasting corporate debt profiles mean lagged economic response.
  • Anticipation of a manufacturing/retail sales revival: “Early innings of a cyclical acceleration in spending again” (Andreas, 20:19).

6. The Coming Liquidity Event — “Life Cycle of Liquidity”

• Trigger Points and Central Bank Responses ([22:05–24:38]):
  • The Fed is running out of technical marginal tools; next step likely some form of QE or alternative liquidity adding measure.
  • QE’s political toxicity means the Fed will look for indirect measures — e.g. expanding use of the Discount Window (“...a very neat and smart way to ask the banks to hold some more bonds…add liquidity via this lending scheme and no one will get a word of it because it’s all officiales. It doesn’t even smell like QE. But in an indirect way, it is QE.” — Andreas, 24:38).
  • Raoul suggests swap lines for Japan (and by extension China) or regulatory mandates requiring pension systems to buy bonds (26:02–26:58).

7. Actionable Trade Ideas

• Best Counter Trades for a Bearish Q1 ([27:20–30:01]):
  • Raoul suggests long December 2025 SOFR futures (interest rate futures), call spreads on the short end of the curve, or buying the dip in crypto as the best counter-cyclical plays.
  • Andreas likes the divergence trade: long December SOFR vs. short the Eurozone equivalent, given differences in inflation basket weights (“…tremendous trade…in all transparency one that I have on because of the divergence…,” Andreas, 28:31).
  • Raoul advises retail listeners to use simple call spreads due to the complexity of pro-level cross-rate trades.
• January Effects: Both agree that January is notorious for false signals: “January’s have this lovely habit blowing everybody up before the true Trend establishes…” (Raoul, 31:05).

Notable Quotes & Memorable Moments

• “Nobody wants this. Literally nobody.” — Andreas (on EUR/USD parity meme bet) [01:06]
• “The dollar is structurally strong because the world is 50% in debt, in dollars, and there’s a shortage of dollars.” — Raoul [04:23]
• “Trump plays the blame game and allows himself a little bit more time…He can basically blame what Biden did…” — Andreas [05:20]
• “The UK seems to have the worst liquidity of all of the major bond markets…It cannot be escaping the central banks that inflation expectations are stable and yet yields are exploding higher…” — Raoul [12:30]
• “Trump has got to show markets going up, people are happy, all of that. And we know how to do that. It’s simple. Just jam the pedal on the accelerator with liquidity and everybody’s a winner.” — Raoul [13:07]
• “I think QE’s got such a dirty word that they won’t use it. So you have to find a way for somebody else to buy the bonds.” — Raoul [23:42]
• “It doesn’t even smell like QE. But in an indirect way, it is QE.” — Andreas [24:38]
• “January’s have this lovely habit blowing everybody up before the true trend establishes…” — Raoul [31:05]

Timestamps for Key Segments

• [01:06] EUR/USD parody meme and OnlyFans joke
• [01:35–04:23] Trump, the dollar, and global macro setup
• [06:22–08:19] Global M2, correlation in cycles, upcoming policy signals
• [09:34–10:53] Bitcoin technicals and macro drivers
• [11:14–13:07] Sterling’s fall, UK liquidity, yield breakout
• [14:00–16:18] Hot inflation prints, lagging effects, deflation risks
• [17:08–19:26] ISM weakness, bifurcation, slow catch-up
• [20:19–21:27] Signs of cyclical economic acceleration
• [22:05–26:58] How and why the Fed could add liquidity, creative QE alternatives
• [27:20–30:01] Audience Q&A: counter-trades for Q1, trade ideas
• [31:05–31:47] January market traps and the “true trend”
• [33:22–33:51] Real Vision Pro Macro plug and team collaboration

Tone & Additional Highlights

• Tone: Light-hearted, sharp, and practical, with healthy skepticism and direct language typical of macro professionals. Both host and guest mix humor with seriousness, keeping information both accessible and actionable.
• Memorable Banter: Ongoing jokes about Andreas’ OnlyFans for EUR/USD parity, Raoul’s indifference to the pound, and warnings about January market whipsaws.
• Actionable Orientation: Both host and guest frequently mention their own positioning and openly articulate both professional and retail-accessible versions of trade ideas.

Conclusion

Raoul Pal and Andreas Steno unpack the intersection of politics, policy, markets, and liquidity amid the unique pressures of 2025. They highlight parallels between past and present USD cycles, anticipate how the Trump administration may approach the “strong dollar problem,” and outline creative endpoints for upcoming Fed action. The episode concludes with tangible advice for listeners, including specific trades to watch and a warning not to be fooled by January’s market theatrics.

For further trade ideas and deep macro dives, listeners are directed to Real Vision Pro Macro and Steno Research.