This episode reveals the "Everything Code"—a powerful macro framework arguing that relentless currency debasement leaves only two asset classes, tech and crypto, as viable for generating real returns.
The "Everything Code": A New Framework for a Debt-Saturated World
- The Debasement Litmus Test: Raoul argues that the only way to measure true performance is to divide an asset's price by global liquidity. This reveals a stark reality: most assets are not creating wealth.
- The Only Assets That Win: When viewed through this lens, only two asset classes consistently outperform currency debasement: technology stocks (specifically the Nasdaq) and crypto.
Raoul Pal: "If I'm to allocate to the S&P 500, I'm basically breaking even versus debasement. So the S&P 500 is not really adding much value."
- Strategic Implication: This framework invalidates traditional diversification. Raoul states that with one dominant macro factor—liquidity—investors should build concentrated portfolios focused on tech and crypto.
The Macro Drivers: Demographics, Debt, and the AI Solution
- Demographics as Destiny: An aging population is the most significant secular headwind for global growth. As the labor force shrinks, so does the trend rate of GDP.
- Debt as the Offset: Governments have compensated for falling population growth by massively increasing debt, which is then monetized through liquidity creation (debasement). This explains why asset prices rise optically while real wages stagnate.
- The AI Endgame: The only viable long-term solution to break this cycle is a massive productivity boom. Raoul posits that AI and robotics are the "replacement humans" that can provide the necessary productivity growth to overcome demographic decline.
The Economic Singularity and the Future of the "Everything Code"
- Defining the Economic Singularity: This is the future point, estimated around 2030, where the exponential growth of AI and robotics makes traditional economic models and metrics completely obsolete.
- The Shifting Game of Liquidity: The mechanics of debasement are constantly evolving. Julien notes the progression from the central bank balance sheet (QE) to Fed net liquidity (TGA/RRP management) and now to total liquidity, which includes stuffing liquidity into the banking sector and, potentially next, stablecoins.
- Investor Takeaway: The "Everything Code" will likely remain operative for the next 5-10 years, covering this cycle and the next. Investors should operate under this framework until the Economic Singularity begins to fundamentally reshape markets.
Decoding Market Signals: Gold, Liquidity, and the Business Cycle
- Gold as a Real-Time Indicator: In a significant insight, Raoul reveals their work shows gold has decoupled from real rates and now acts as a real-time proxy for financial conditions, leading other indicators.
- The Domino Effect: Julien outlines the "business cycle dominoes," a clear chronological flow:
- Financial Conditions (led by Gold) turn first.
- Global M2 (Liquidity) follows with a lag.
- Risk Assets (Crypto, Tech) react to liquidity.
- The ISM (Institute for Supply Management) Index, a proxy for the business cycle, follows risk assets.
- Lagging Indicators (Employment, CPI) come last.
- Actionable Insight for Researchers: This sequence provides a clear framework for forecasting. By monitoring gold and global M2, researchers can anticipate shifts in crypto and tech markets well before they are reflected in mainstream economic data.
The End of Recessions and the Inevitability of AI
- Debasement as a Recession Shield: By continuously debasing currency, central banks prevent the kind of asset price collapse that historically triggered recessions. The system is too fragile to withstand it.
Raoul Pal: "You have no clue what it means when the world is 400% of GDP in debt... What are you going to do? Write every single asset, everybody's savings down by 90%... Never going to happen."
- The AI Imperative: With immigration politically rejected as a solution to demographic decline, AI becomes the only path forward. This will have profound societal consequences, as AI is poised to make both manual and intellectual labor infinitely available and nearly free.
- Strategic Implication: The macro-political landscape is locked into a path that necessitates an AI-driven productivity boom. This reinforces the long-term investment case for the Crypto AI sector as the central engine of future growth.
The Outlook: "Wen Banana?" - The Path to Q2 2025
- 2017 on Steroids: The current cycle strongly resembles 2017, but with a more supportive backdrop. Unlike the truncated 2021 cycle where liquidity was peaking, both global liquidity and the business cycle (ISM) are now in an uptrend.
- The Catalyst for "Alt Season": The next major rally, including the highly anticipated "alt season" in crypto, is expected to kick off as the ISM moves from below 50 into the mid-50s. This signals a pickup in economic activity, driving capital further out on the risk curve.
- Actionable Insight: The framework suggests the current market consolidation is a prelude to a significant rally extending into Q2 2025. Investors should view this period as an opportunity to position for the next wave of the cycle, driven by improving liquidity and economic conditions.
Conclusion
The global economy is locked in a debasement cycle where only tech and crypto offer real returns. This "Everything Code" framework suggests investors should maintain concentrated exposure to these sectors, as the inevitable push toward an AI-driven productivity boom will fuel the next major wave of this powerful, liquidity-driven cycle.
