'A nuclear f---ing warhead': A former hedge fund manager warns coronavirus panic will bring the global economy to its knees - and says a depression is now his 'base case'

AP Photo/Ahn Young-joon

• Raoul Pal, the former hedge-fund manager who founded Real Vision, thinks governments will shutdown large parts of their economies in order to suppress the spread of the coronavirus.
• Pal draws parallels to the Spanish Flu epidemic for context, and leans on the latest Chinese economic data to bolster his thesis.
• "We have no ability to deal with this in the medical system," he said.
• Pal says his base-case is an economic depression.
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"This will be the worst economic event of our lifetimes."

That's what Raoul Pal, the former hedge-fund manager who founded Real Vision, said on the "Off the Chain" podcast as investors jettisoned equities in response to the latest coronavirus updates.

For the uninitiated, Pal retired at age 36 after quitting jobs at both Goldman Sachs and GLG Partners. He lives comfortably on a 140-person island in the Cayman Islands and spends his days writing market research, which comes with a hefty price tag of $40,000 per year.

"You have one of the fastest spreading viruses we know of, and it's undetectable, and it has a high death rate," he said. "The weird part of this virus is it's not detectable for two weeks and up to 27 days."

He continued: "That is like a nuclear f---ing warhead."

To put the coronavirus' potential effects into context, Pal draws parallels to the Spanish Flu outbreak.

"Spanish Flu hit 27% of the entire world's population - and at the time that meant 500 million people were infected ... and, in the end, about 30 million people died," he said. "If you look at 27% of the population now, it's about 2 billion people. If you have a death rate of 3.5%, 68 million people will die. So that's your base, worst-case scenario."

Due to the virus' taciturn way of spreading, Pal says that governments are left with few options to combat its proliferation. To preserve public safety, he thinks they'll have to shutdown all economic activity within their borders.

"We have no ability to deal with this in the medical system," he said. "So they have no choice but to start quarantining nations, or at least large regions."

Pal notes that this type of governmental action is not without consequence. To demonstrate this idea, he leans on the latest economic numbers stemming from China - a country that he says has already gone into "total shutdown."

"China car sales fell 92%; In this month, they're down 80-something percent," he said. "The PMI - the purchasing managers index for China - had the largest fall I've ever seen in any economic statistic ... I've ever seen. And that is the second largest economy on earth, with the largest population. It is mind-blowing."

To Pal, China is just the tip of the iceberg when it comes to the coronavirus' impact on economic activity - and he thinks South Korea, Italy, Spain, France, Germany, Iran, and the US are all at risk of following suit. In response, he says that travel, tourism, conferences, and businesses will likely be shutdown.

"The size of it and the speed at which it spreads - and the incremental increase in deaths worldwide - is not something a government will take, so they're going to have to close large parts of the economy," he concluded.

"This just pressed the nuclear button for depression. Now I say that, not lightly - there is always a probability that that doesn't happen - but it's become my base case now, because I do not see a world in which there is not an outcome where they have to shutdown whole parts of economies."

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