Hugh Hendry, OG Contrarian (Szn 4, Ep21) – The Contrarian Investor Podcast

Last updated on October 19, 2022

Hugh Hendry is a man who needs no introduction to contrarians. Over the course of this 90-minute conversation, he provided many views on markets, the economy, the Federal Reserve, China, and a lot more. Of particular interest to investors are his bullish views on commodities, oil producers, and luxury goods makers…

Content Highlights

Hendry’s most contrarian opinion right off the bat: The Fed is not responsible for the asset price bubble (2:40);
“We find ourselves in the fourth depression of the last 200 years” after “les miserables” period of 1830 to ~1855, 1870 to the late 1890s, and the 1930s (8:11);
“I don’t think we have inflation.” Sales of non-discretionary items are not increasing (13:53);
Very few people understand money and money creation. What are they missing? (28:56);
What’s behind the stock market rally this summer? It may be commodities, at least in part… (39:49);
Markets are ‘bucking broncos.’ Volatility can be a major distraction and nothing happens in a straight line. But commodity producers and uranium should be in good shape over the long term (46:55);
Background on the guest. As an ‘OG contrarian’ Hendry joins an exclusive list (54:58);
A little insight into Hendry’s current life and psychology (1:10:40);
Betting on the Chinese yuan weakening (1:14:37);
The odds of the 10-year treasury making new lows (1:22:44);
China invading Taiwan? Hendry sets the odds at 20% and says China will never have a stronger bargaining positioning vis-a-vis the U.S (1:24:16).

More Information on the Guest

Twitter: @Hendry_Hugh;
Substack: HughHendry;
Instagram: HughHendryOfficial;
YouTube: HughHendryOfficial;
The Acid Capitalist.

Quick Highlights From Our YouTube Channel

Transcript

Nathaniel E. Baker 0:35
Here with a man who needs no introduction. Certainly for contrarian investors or anybody who has followed contrarian investing the last 20 years. That is Hugh Hendry, founder of eclectica asset management, as well as some other things a long and storied history as a contrarian investor. And I’m very pleased to have him on the program today. I’m very thrilled to be able to pick his brain here, about markets, about the world and about some other stuff. And to kick us off, I just want to start off and ask you point blank, what your most contrarian view is right now, on markets or the economy. And let’s talk about that.

Hugh Hendry 1:21
The Fed don’t matter, the Fed are not responsible for the asset price bubble. The mercantilist nations principally China are screwing up. It has to be stopped.

Nathaniel E. Baker 1:35
Okay, do you mean long term or short term?

Hugh Hendry 1:38
Both. So the Fed isn’t irrelevant to the concerns, the conception the unannounced conception of the private sector solution to banking, which effectively took out government or took out the legislature of the Federal Reserve, starting in the mid 1950s. And again, starting because Bretton Woods just didn’t work. A monetary system needs to be elastic in its ability to create money, and anchoring it to the US Dollar was elastic enough to expand the American the reemergence of Europe as we rebuilt it after the Second World War, it wasn’t elastic enough to rebuild Japan for the same circumstances. And so the private sector came together outside the United States, and created a monetary system, which bypassed the Federal Reserve. And so all the Federal Reserve has had for the last 50 years has been rhetoric. And they’re kind of running out of rope. And I think they’ve made some blatant errors principally through the COVID period, with regard to the overuse of their rhetoric. And I think that’s coming back to haunt them. And as they lash out, and they’re actually creating harm to an economy, both domestic American economy but I would extend that globally to an economy which has found itself in a mild depression ever since the global financial crisis of 2008.

Nathaniel E. Baker 3:25
Okay, so take me back here. What do you mean by not elastic enough? And wouldn’t the recovery in Europe and Japan and post war was pretty successful by all accounts, wasn’t it?

Hugh Hendry 3:36
Yeah, because, thankfully the private sector kind of bypassed the Bretton Woods system. So the elasticity goes back into that Triffin dilemma, which just points starkly at trying to use one nation’s monetary supply as an anchor for the rest of the world, right. Elasticity is the ability to, to print money in periods of duress, in periods when the population are suffering, gone, gone must be the days when we crucify the nation on a cross of gold or god forbid any other commodity, right. So, you know, commodities are not elastic. fiat money or a monetary system founded upon using the collateral of US Treasury bonds, is where we are, maybe it will be replaced. But the common error as I perceive it, and it’s very much caught up in the, the New Romantics of of crypto to confuse the multifaceted uses and applications of money I’m talking about in this regard. The use To the monetary system to heal, profound cyclical swings, which which leave us very vulnerable. I’m not talking about the role of money, which one alludes to with regard to store of value, you know, you have huge choices. Huge and various varied choices for store value stock markets aren’t pretty damn good job the last 150 years, our wine, you know, you name it crypto, if purchased, purchase wisely and without, without the huge response in the last few years. Well, the idealism of the last few years.

Nathaniel E. Baker 5:40
Right. Okay, so you’re saying that we need something even more flexible than the US dollar has been? And what do you and you touched on some of these asset classes that absolutely can store value and have stored value? They aren’t liquid? I mean, cryptos, I guess are but wine and gold certainly aren’t. But so what would you propose? Is the solution here to fix this?

Hugh Hendry 6:05
Well, I obviously wine is a is a silly example. But the the cart of options is is is long, you know from from property, commercial property, residential property, landmark properties, treasury bonds, private equity, credit, stock markets, I mean, heavens, the sum of all assets in the in the US economy reached a peak, a terrifying peak of about seven times GDP last year. So the assets are our nanny. To answer your question, we find ourselves in the fourth depression of the last 200 years. The first depression was let me say, Rob, you Victor Hugo’s, I’m not really into musicals. But music Rob was the period, let’s call it 1832, around 1855, which was then closely followed by the kind of the glorious, or the what I would call it The Wizard of Oz, depression of 1870, to the late 1890s. And then the one we know most about the depression of the 1930s. And then today, now, the three previous are currencies of depression, were ended with either a revolution, or an important discovery of new money, again, the ability to make money elastic to make it expandable, so that we didn’t crucify the population. The 1830s was the discovery of the California and Goldfields. So you which created a significant increase in in what was a scarce resource that gold was hard to find. And, and bank lending was very much a function of the banks, the private sector banks actually having physical gold buyers in their vaults. You reach a point when you have extended the limit of your credit, and you cannot do more. The same thing happened again in the 1870s, which was the rebuild after the Civil War. Banks extended credit until they couldn’t extend credit more because the gold was elastic. It became more elastic with the discovery of the discovery but the technological breakthrough to to leech what I want to say to leach gold out of the ground, the grounds of South Africa. So again, you had a supply increase the depression of the 30s. Heavens, what was the solution there? I would possibly sit. I mean, clearly, we had the advent of war, was war the solution? I hope not I suspect not. I can’t think of a proper intellectual justification for that. Probably it was the emergence of a private sector banking based system, which to government out of lending. And then we’re here today and we know there’ll be an innovation, we know there’ll be a new phone supply. They want to see supply. I want to I want to push back on that perhaps I’ll do that later. But innovation perhaps. And I’m watching blockchain you know, I’m I’m expected that that could provide something so if you if the Euro dollar system to bank took governments out of the money making system, maybe blockchain will allow us to take banks out of the money making system and maybe that will allow us to escape this kind of this fourth period of depression. Right, right.

Nathaniel E. Baker 10:01
And so the fourth period of depression would have started in 2008. And Alright, that’s all very interesting. But the issue you have is that it’s all everything is sold denominated in US dollars and other fiat currencies, which are driven by central banks, of course. And is that really a system that you think can be replaced?

Hugh Hendry 10:22
Are they driven by central banks that driven by private sector banks? So the Federal Reserve, as, again, to use the camouflage of their language as it has printed seven, what $7 trillion? Or is it $9 trillion, I think it was 11. And then needed another 2 trillion, after the period, when it became established that the recovery from COVID would be in fee rather than some something protracted, I think they added another 2 trillion, but like you say, a lot. But that’s not money. You know, it’s I don’t want it as laundromat tokens or what have you, it only becomes money. So essentially, what they did was the the poured a lot of gasoline around an igloo. What I want to say is they furnished the private sector banking community with the ability to set the house on fire in terms of inflation. They gave it the means to really let rip. But it’s private sector banks extending credit to other other agents within the economy, which is the money printing business. And that hasn’t happened. Banks have been profoundly unwilling to extend credit. And that’s why yes, we’ve had an economic recovery since 2008. Yes, the nominal and real levels of GDP exceed the peaks of 2007. But the 30 years, up until 2007, the US economy was compounding in real terms at a rate of about 2.7. And we’ve never attained that level. Again, we’ve, we’ve lost at least one percentage point of that every single year. And that’s a huge loss. That’s a loss and people’s dreams and people’s livelihoods, etc, etc.

Nathaniel E. Baker 12:17
And it hasn’t kept kept pace with the growth we have had hasn’t kept pace with inflation, at least these last couple of years.

Hugh Hendry 12:23
I don’t think we have inflation, you really contentious points. I don’t, you know, maybe I’m naive, maybe I’m stupid, but inflation is a monetary phenomenon Okay, what does that mean? Okay. So, prices are presently price increases are running at between nine and 10 present okay. Why where are these price increases, these price increases are everywhere, and they are in and for simplicity is best to separate the world between discretionary and non discretionary. So, you know, food and filling up your car to travel to work etc, would be would be non discretionary. You have no choice, going to Tiffany’s and buying a ring or subscribing to you know, another family pass for Netflix would be discretionary. No, Milton Friedman launched this notion of it being a monetary phenomenon because unless money is circulating again this elasticity concept unless the elasticity of money expands to accommodate the higher price level of everything. If it does that, then the average consumer can maintain the consumption because there is enough financial means to continue the same spending patterns. But what if the elasticity is not there? What if money is not coursing through the economy? What if banks are not printing money with abandon? Then we reach a situation where probably money is growing something less than 6% nominal. And so what you will find what you are finding what the second profit warning in a row from Walmart reveals is that people are forced comm failed to cut back on discretionary items. And the media this week has been full of Posterous headlines. The retail sector and sends out confusing signals. Currently sales of Harley Davidson are way up apparently again to I quoted Tiffany, Tiffany sales are way off. Okay, but there’s no mystery there. Like there’s like a cohort of profoundly rich people who are trading off the bike of asset price inflation. Yeah. And those people are my clients in St. Barts, you know, I, I own one love profoundly luxurious villa blonde blue maze on blogland. Please come and visit us I’m about to open the second blonde, blue loss aversion. And I mean over Christmas, you’re talking about over $200,000 a week to read. Okay, so you were talking about that cohort of the 1% of the one present. the coming few come No, here we are in August, you have humidity levels of 80%. The temperature is in the high 80s, if not 90s. And the complaint is that the swimming pool is not warm enough. We are we are burning Elektra that actually is a solar panel. But we have that thing heated to the max as though it was winter. And then the complaint is indoors that the AC is not cool enough, right? So there’s no mixed signal rich people are damn damn rich are getting richer and willing to spend. And the people who have no choice and find themselves at Walmart, are cutting back. So it brings by we saw something similar to this after the Second World War. And remember what we’ve just come through another war like, situation with COVID. And when it all rebalances, when, when industrial capacity is out of sorts, it was out of sorts in the Second World War, because it was all reconfigured to make bombs. And it had all been reconfigured figures from 2020 to 2022, to be to be closed down. And the process of re engaging that is higher prices again, but higher prices, which are not met by an ebullient banking sector will force a retrenchment by the majority of people and they will be forced to make hard decisions on their spending. And I think we’re seeing now.

Nathaniel E. Baker 16:45
Okay, so to understand correctly, like there has been money creation and credit creation, but you’re saying it’s all going to the very top? And I’m assuming you don’t think this is ever going to trickle down to the regular folks. We’re sure it hasn’t.

Hugh Hendry 17:00
We’re sure it’s not so the the Money Creation. So that’s like the, the gist of my argument. This the system is failing us. We and I mentioned the horrors of what is it? Is it William Jennings Bryan or Jennings Bryan Williams, I always get a broom. Jane is the first one. Yeah. Who was the Populists presidential candidate, he ran twice in the 1890s. And again, he was arguing for effectively who’s arguing for Bitcoin, or he was arguing for again, an expansion in the money supply, he was arguing that we should go, we should ditch just gold, and we should introduce the plentiful and American source silver, so that, you know, we could resuscitate. And without that we were crucifying people. And something very similar happened in the 1920s and into 1930s. It’s happening today, visa vie, the dollar one or the dollar renminbi, or the dollar Chinese peg, the monetary creation, which is transforming the economy of the United States, the industrious and the entrepreneurial economy of the United States is being corrupted by a great sin of another nation not trusting his own citizens and forcing them via various cut not cultural, but various government diktat and regulations and just putting them into kind of windows where they are limited with choice. And it’s, it’s, it is refusing to pursue in DOD checks, which China is refusing to pursue domestic led economic growth, which comes from the individual, which comes from the consumer. It doesn’t trust people. It’s a Communist Party wasn’t elected by people. And it doesn’t trust people. And it fears that if you let the people spend money, then for sure, they’ll get things wrong. And we will have private sector booms and private sector busts in the in the body that the busts would take their notes. So they worry about a repeat of what we saw at the end of the 1990s with Thailand, and the tiger Asian thing which just went boom, okay. So their solution to that is to suppress and we know this consumption is 40% of GDP in China, it’s remarkably low, remarkably well, and by design, and so instead, they’ve part almost the same quantity as the Fed pretends via as quantitative easing. They’ve actually injected $7 trillion

Hugh Hendry 19:54
into the US economy and said, you spend that is almost van defying. answering it’s almost like this crackpot idea from the last 18 months of a by no p p when p never, you know that that would work as a system that would work. If the American economy if it was the 19th century, you know, we would have had those depressions if we had, if we had the largest of the Chinese, but work the US is not building dams, it’s not building multiple rail tracks to the same destination. There’s not you don’t have a revolution in chemistry or telecommunications. And it’s a different form of economy and where there are opportunities to invest, the private sector has already filled it. So this $7 trillion that comes in from, I really want to see mean spirited, American Tillis nations, it is the glut of savings that Bernanke went on about, okay. And it’s poisonous, because it takes the price of money. Very, very low. And when you take the price of money to zero, then you take the place of assets of safe assets, effectively to infinity. So that’s where we were when you the 10, year German burned was like minus 80 basis points that went up or is a $3 trillion company. Inflation. That’s asset price inflation. Okay. But you know, the folk, the folks who work in the Amazon warehouse, do they see the inflation and where does the real Scourge is in unleashes speculation and speculation is unstable. And so we periodically get big drawdowns. March 2018, was very notable as we increase the volatility machine, march 2018, prices were on the verge of resetting to zero, equity prices would reset to zero. Citigroup, in March 2018, was trading at nine bucks, which was the prevailing level from the mid 1970s. And actually, they bucks was the wrong price because it was bankrupt. You know, the problem there is the Fed didn’t bail. The US citizen bailed out asset prices. And I can’t complain about that, I think that was your to reset to zero would have been a catastrophe. However, you’re asking the disenfranchised, disenfranchised members of the United States economy, those who don’t have the fortune of owning assets, either because of their age, their skill set or other forms of misfortune, and they are effectively subsidizing the acid waters. And what have they got to show for it? It’s not obvious what they have to show for it.

Nathaniel E. Baker 22:57
Yeah. But for now, like, they’re still willing to do it and still willing to live their lives? I mean, you mentioned revolutions and the periods that you that we talked about. I mean, I guess you could maybe claim 1848 was a series of revolutions failed in Europe, mostly, but I guess 80 and 70, in France. But the other than that, there hasn’t really been like, all those periods didn’t really end in revolution. I hate to turn this into a talk about this type of stuff. Yeah, but but the point is that citizens for now seem to be content with their lot in the capitalist system. Just buying stuff. They can’t afford that they don’t need and working their jobs and whatever. Or is that the wrong take?

Hugh Hendry 23:50
It’s not my take. And maybe it’s because I had the fortune or otherwise, I moved to to Paris, in August of 2018. So the two tables there was profoundly difficult to find an apartment because that was the summer of, or the summer following Brexit. And there was there was a lot of French leaving London coming back. And the French are blinking racist is like the view there are very tight rules on kicking people out of rented accommodation. So they kind of prefer that your French that kind of prefer that you work for the unknown, etc. And I turned up with my Hugh Hendry height and my spectacles and my rockstar kind of, you know, gig and I’m like, You know what, you need 100 grand for the deposit boom, and then like, what you’re going to say it was cocaine next, you know, so that was that was difficult. And then secondly, having secured like, you know, a dope apartment I mean, good at my Hugh Hendry, official YouTube channel and you’ll see I made a stupid I was so big I could skate for skateboard through the damn apartment. And I was in just you, you can see the, the tree of from the from the windows, but at the weekend, you could spell I was gonna say say you could smell napalm, you could smell napalm, you could smell tear gas, because it coincided with Macron kind of raising the levy on diesel. And owing to the commitment to either Kyoto or probably Paris, and the population that works in Amazon warehouses, and actually have to put on 1000 euros a month, imagine that and, and fill it and actually probably have to spend over an hour driving a day. And then the price goes up. Because the because all of us but especially the rich people want to save the planet. And they’re like, No, it was open revolt. I’ve never never seen open ruble. I’ve never so I now know that the smell of tear gas. So maybe that’s maybe that’s just France. Okay. Bryce, I suspect actually. Water life sucks for nanny. And I think that’s behind the opioid epidemic, etc. But farther removed from trading and investing? Yeah, potentially.

Nathaniel E. Baker 26:19
I mean, we’ll see I’m, I’ve lived in France to actually and they have I mean, they’re, they constantly have strikes, right? Like “la greve, la greve,” like they’re constantly doing it. Although having said that, probably what you experienced was a little more significant. I’m not doubting that. Okay. Fair enough. All right. So let’s, let’s move things back to investing here. What does an investor do?

Hugh Hendry 26:38
What does the investor do? Again, what’s intriguing is, since the advent of the fantasy of printing money via quantitative easing, okay, so you’re making dollars more and more plants where you create $9 trillion of them, you think the marginal price of $1 would fall? And in fact, it’s actually increased. So again, kind of like, you know, it’s rhetoric is silly. And again, the other strange thing is in this world where, again, they tell us their their print GE power, went on daytime television, in the summer of 2020. And he said, we’re printing money. He openly said that no, no, that the law that created the Fed, does not allow that. And, you know, any intelligent person, I see any intelligent person that’s unfair. I think I’ve said before, there’s maybe five people in the world who understand money. I mean, that’s a shock to the outside world. You think all these masters, the universe, hedge fund types, bankers, private bankers, you know, credit, almost none of them understand money. I understand that a little bit. I’m kind of a little bit, but it’s such a such a big thing. So

Nathaniel E. Baker 27:56
what are people missing?

Hugh Hendry 27:59
Well, they’re blindsided by government campaign for the last 50 years that you’re the Fed is omnipotent, that the feds got this that the feds, you know, controls money that, you know, the Paul Volcker myth. I mean, there was an interview in the financial times a week ago from the, what she called the former secretary of the SEC can remember or named firsthand. America. Yeah. And just she did the Volcker myth that that it was, remember, we used to measure m two m two plus CDs, we would have targets and all that stuff. They did eventually see, we’re sorry, that was a waste of time. We cannot measure this. Why can’t you measure it? Why is it why why will your endeavors fretless because the Eurodollar, private, like kind of metric system was doing it offshore, and you weren’t looking at that. Sheila Blair, is that the name? She writes a big piece and a big opinion piece of, you know, one of the two principal financial newspapers in the world prints it without anyone going. That’s wrong. So lots of myths have grown up. Concerning money. The, where should we go with this steep depressions reveal a desire not to take risk. You know, and desired to favor law. Even negative, but Saturn returns because your appetite for a commercial return the precedent, when you when you turn in on yourself and you look back, the precedent is one of grave error of Citi Group being bankrupt, etc. And you don’t really want to and the incentivization scheme has changed and And why would you only lose your job? It’s not like you get a massive bonus these days. So we saw this after the the bankruptcy of the banking sector in the 1930s 40 years later going into the 1970s. Banks were utilities high yielding, very, very conservative, almost impossible, impossible to get loans from. And in fact, Jimmy Rogers went to George with the quantum von Neumann, George started quantum fund in 69. And he said, Yep, times are changing. I’m listening to Bob Dylan times already changing. And these banks are sending kids, and they’re doing these MBAs and they’re coming back. They’re like, I got ideas, I can change the world. And Jimmy was saying, we should we should invest in banks, because there’s a contentious narrative. And I say to you, that these stuff are utilities. I’ve seen a future where they become these growth vehicles. And Giorgio is like, Oh, my back, my back hurts, you know? And he’s like, Yeah, go for it. And they were right. So you take long periods where culturally, society demands the Yeah, has a revulsion for the previous activity. And you, you, you bend into that that’s where we are, we’re, like 15 years into what could be, you know, a 30, year 40 year period.

Nathaniel E. Baker 31:23
Okay, well, that still begs the question, Where does it an investor do? And also, what comes next? We talked a little bit about Bitcoin, though decentralized finance, and how that could, I guess, put the replace the banks. But, I mean, the whole system, though, is kind of rigged in the bank’s favor, right. I mean, they, you had the repeal of Glass Steagall seagull in the in the 90s. And they had all these regulations and repeals regulations in the 90s, that kind of let them become these huge things that they did. And then eventually, they a couple of them went belly up, and oh, eight. But and for a little while, there’s talk about making them, you know, Wardens of the state. And that never much came to that. But can you just keep doing this?

Hugh Hendry 32:10
And so, to your question, big issue, just know, is, again, the rhetoric of the Federal Reserve. So in my career, post 2008. I was periodically seeking to receive interest rates, which was a macro strategy that said, rates are now elevated, they’re elevated by a kind of Pavlovian notion that in the past, you’d have recoveries and retain the trend rate of growth. And, and central banks would have to pivot. And you’d have to raise interest rates. And so you’d have again, not structural but periodic, cyclical, five, 610 years of higher rates, and until, until it’s opposite. And I was early, conceiving the notion that it was actually a depression, I think I was mindful of the events in Tokyo. And you’d had that Pavlovian response where as soon as you got emergence of an economic recovery, people were coming in and they were paying, there was a healer, I’m paying rates are gonna go higher and higher and higher here, I want more of that. And that proved consistently, the wrong thing. And typically, the sweet spot for that macro strategy was the bank, the central bank would tease you for four months. We’re thinking about this thing. We just met yesterday, maybe all this kind of noses, and then they would do it. And that was the moment where is the sum of all your? My worst fears, if you will, but that was the point where you were you struck your the ECB, tourists, immortal shame, raised interest rates, I think in June or July of 2008. Yeah. That was the peak in race. That was the peak in the whole, the whole curve within Europe. And so they prevaricate, their procurement, procrastinate, procrastinate, and then boom, they they find that they have the guts and the courage to do it at the wrong time. And that’s when you make your money. And they come in in the they recant, they say, Oh, we got it wrong, and it quickly go back. That seems a bit of a challenge that strategy today because the Federal Reserve seems to be doing a Volcker pivot. You know, again, it’s reading Sheila Blair and the Financial Times. And it’s daring, some vaalco. When was Volcker appointed? He was appointed in The late 1970s. And I said you we had conservative bikes. I said to you, we had the bankrupt bankruptcy of the banking sector 40 years prior. And with bankruptcy, you’ve had debts of three, three and a half percent to GDP in America. And by 40 years later society had D leveraged, and we were like one times debt to GDP. So the Fed raising rates, and it obviously raised rates considerably. But when debts like one time GDP, no big deal, okay, but you try that exercise. When dead is four and a half times GDP, you try that exercise, when you kind of just spent 15 years, inflating asset prices were because money was priced at zero. And asset prices are already creating from seven to four and a half times GDP. You’re gonna bring on the mother of all economic storms in my world by raising rates, they remember in which they have Yeah, and the so the elevation in price increases, it’s likely to continue your whilst consumer, like the Walmart consumer is already retrenching pace, avoid coming down price a commodities which are in profound scarcity. And why the scarcity because we had this plague of the environmental social governance, the ECG, where we didn’t have a balanced debate. And again, people kind of got angry, they said, He’s stop, we got to save mother nature’s you know, stop. That wasn’t an intelligent, detailed debate. It was simply politicians pursuing sound bites within a kind of four year term of office and then leaving it to someone else. And it’s left us with a profound scarcity, of, of production of supply of this is likely going to remain elevated. And so the fear that I would have receiving rates today is I just don’t recognize this Federal Reserve, I don’t recognize humility, I recognize more and more kind of rhetoric which I associate with a lowly leveraged economy. And so the danger is they could just keep pushing us over the edge. Now, in the short term, again, so have lovi in cycles within Pavlovian cycles. People have the bond market all year has said, fed, you’re wrong, the bond market should, should it does set interest rates, the Fed just, you know, throw sand in the, you know, the markets were raising raise rates ever since the Feds intervention in March 2020. And then the Fed comes in goes, Oh, we better join in. You know, it’s like an uncle dancing at a wedding. You’re like, no, just, you know, like, have another glass of wine. Stay out of it, you know, you’d actually markets caught a bit over the summer. And it’s quite a bit because the treasuries have stopped falling. So you know, the first six months of the year were profoundly painful and unusual, because all I suppose there was no diversification. Everything just came down. There’s been the emergence of diversification. But I’m, I think, so if you will, Treasuries are a comfort blanket for stocks. But I feel that treasuries have grown up issues, which is how we resolve the ESG phenom social phenomenon, which is leaving us with a profound shortage of commodities, which then influence non discretionary spend, such as filling your car up, and AC and heating your house. And so be fascinated to see how that plays out.

Nathaniel E. Baker 39:18
But you seem to be saying you think that the Fed is going to keep pushing on higher interest rates here?

Hugh Hendry 39:23
The Fed will continue to push on interest, interest rates until such time as you get another no just now we’re in a kind of a blah bear market

Nathaniel E. Baker 39:30
Right

Hugh Hendry 39:30
And you can agree, we’re on either side of 20% If you’re down 45% Yeah, the Fed will get called. Okay, what are you going to do about it?

Nathaniel E. Baker 39:43
Yeah

Hugh Hendry 39:43
And we know they’ve done previously. But you know, so and so they will they will do some black, they will do some magic. They will pull a rabbit out the hat. equity prices will will respond accordingly. Do you go by Back to all time highs, If oil is 120 530 545 something to ponder, I don’t know the answer. I haven’t seen the future. But that would be one of the fears.

Nathaniel E. Baker 40:14
But now what if you have inflation still stubbornly high? And it’s kind of I mean, at least the CPI, if you believe it, whatever? And what if that kind of binds the Fed and keeps them from dropping from cutting interest rates?

Hugh Hendry 40:27
No, I did. Like I’m seeing the CPI owing to let’s do lots of acronyms, CPI ESG. But commodity prices really have to remain elevated. If we wish to encourage the private sector entrepreneurs to extract more misery. It’s a really tough business. Yeah. So really risky business, and it requires a reward. And then at the same time, when you we’ve seen the financial reward in the earning season of the the oil and gas sector, and I don’t know how we’re Severus, it is the United States. But in Europe, the front page headlines are price gouging. So BP reported one of his best but fortunately, annex. That is the margin in refining is just off the charts. But be, and so it captures the, you know, the liberal social conscience that this is bad, and as they will, but let’s first let’s just look at the share price, the share price of BP is almost little change from where it was in 1980 8141 years ago. So it’s not evident that these companies have been price gouging. It’s more evident that this is the return that results when you kind of bond exploration that for you created a profound shortage. Yes. Like, we want to. We want to cure cancer, you know. So imagine you insisted on closing down all the medical laboratories. That’s kind of where we are just now. With more and more, it feels like Atlas Shrugged. I mean, I’m just getting ready for some big entrepreneurs to say, look, you know, take the keys. I tried. You know, you said you wanted more US energy supply. We have bountiful energy supply in the North American continent, I can deliver it. But what did you do in 2018? You jacked up interest rates, you killed my, my credit, my credit boys, my high yield grin from trading at $1 to trading on like, 30 cents. I’ve got people up my ass. I tried guys. And then you sent me. You said I had to have a new board of directors. And he would measure me on this social government. Yeah, I’ve tried. I’ve had it like, I’m over here. I’m off to Colorado. I’ve got a secret Canyon, you know, good luck on it.

Nathaniel E. Baker 43:02
So okay, so it sounds like you still like commodities in general, and even some of the oil producers. Is that fair?

Hugh Hendry 43:10
That’s, that’s fair. So full transparency. I do not invest. I mean, so where I am, I am fully loaded on my version of crypto in that I invested in St. Barts property, this is a at, you know, it takes you like 15 minutes in a car to like go around the islands tiny. And you have the kind of halfing principle where you’ve got the obviously the absolute constraint over tiny island in terms of the number of houses. And then you kind of got this building regulation containment process whereby the houses that I built in 2015, you would never be allowed to build again. So it’s accentuating a reduction if you will, in supply, never making the existing stock more valuable. And you My bet is that there will always be revolutions in thinking and technology and execution therefore there will always be a new rich person. So is why you buy LVMH because when you’ve had a good time, God loved them. They like to peacock and they like to show to their peer group. Hey, look at me and you know, see bars. You need a board you need a villa. You need to go to the best restroom and that’s that’s that’s what I am. But to your question. Seriously, I just like to read just now. I’m too obsessed by the end of the end of the war and I gotta lighten up. But one thing to conceive of because I’m into flow state investing or I was so this point with regard Are to the energy complex. Beware because if we are in a bear market, you will come in under profound pressure to sell even if we’re actually even if we’re in a profound blue market, I would say to you, it’s the same thing. I call it the bucking Broncos, like markets use volatility as a mechanism to make sure that very few people actually attain great success. And so you have to be flown, you’ve got to be a little bit paranoid, you’ve got to kind of consider, you can’t, it’s not enough to conceive of the journey as point A to point B, you got to conceive of it as we took a wrong turn, we got to go back, you know, the kids, we need to take a pit stop, you know that people got to be fair to read it. And you know, and so one thing, one thing that we saw this year, if we take Rio Tinto, one of the big platform commodity producers, and we’re in the midst of shortage and elevated prices, and yet their share price has been a catastrophe. It was yielding 16 present and of course, they’ve just at least half the dividend was like wow, who would have you know, when I was in my prime imagine my hedge fund to outsmart the smartest people might my peer group how to how do you outsmart the smartest people? Who would who would take on that mandate? Who would say I’m smarter than you are? Not me? I always can see you Why is it that being smart? You’re not guaranteed to make money you know, so different way and so a manifestation of that is the investiture you know not everyone can see the playbook with sausages and how you end up getting out an elevation not everyone can see what’s become all this the air relevant of you the WTI oil contracts, and most of the action is being taken place OTC much vol in in the contracts, and the price OTC is or the futures price is not representative of the OTC price, I want to say there’s a huge gap between physical and financial demand. Okay, these are the OTC and underlying. And so that the future would seem to be one where I could conceive of the s&p oil and gas sector retaining the profound highs of being 30% of the makeup of the index. That’s where we were at the end of the 1930s that’s where Tech was at the peak of NASDAQ, and probably just Just lately

Nathaniel E. Baker 47:53
what is it now oil and gas you know?

Unknown Speaker 47:55
oh, I think it’s just doubled to like eight or something. Okay,

Nathaniel E. Baker 47:59
so still got a ways to grow.

Hugh Hendry 48:01
It’s got aways but but again, just never think of just point A to point B so I can think of that the investiture and the knowledge which are wonderful, but they actually they can make you less than nimble. I one of my things was I could sell I could say I could buy and believe in anything and then reject it tomorrow my Jesus never heard of him well the guy with the beard does the medicals the the wedding the wine, the bread, never heard of sorry, you know, that you need that kind of you know ambidexterity with with your mind, and that’s my only concern you I look at uranium. I love you reading the nuclear story. And again, its life is full of paradox. The Greens wanted an indeed have closed nuclear made it an irrelevance in Germany. And what are they doing? They’re burning coal. And like really sell furious bad stuff. I mean, you can’t make this stuff up. Another point to make is, you know, we don’t like we largely don’t burn oil in heating homes today from the grid. And it’s maybe 10% Oil 90% natural gas. If you were to look at the price being paid to heat holds or have AC in the summer, and you were to put that into a barrels pair oil, crude oil comparison, Europe’s paying 600 bucks. Wow. 100 bucks, you know, and it’s one of the things we forget like I do not understand why anyone would build a chemical plant outside the United States. You know, gas is unbelievably cheap. In the in the shelf of the United States, unbelievably expensive everywhere else. So anything kind of with the the gas feedstock and with a American orientation. Again, you should own some fertilizer coming into that equation. Okay, India puts an auction out every year for the fertilizer thing do you use you just don’t know, maybe that gets inconceivable that anyone would have a lower feedstock. So those things but uranium, I look at comical. I think I just conceive of contentious and Irish I’m like, Well, you know, it did get a little bit hot, you know that the the Canadians that created that fund, they were buying physical and it was all yours on bulletin boards, and it was kind of hot stuff. And I just know that those bucking Broncos, despite the fact that you really might treat it 90 or 100 bucks, you might take chemical from I think 21 bucks to 14 bucks before it goes to the 100 bucks. That’s, that’s my what?

Nathaniel E. Baker 50:52
Okay, okay, cool. So long term, uranium, you mentioned some luxury goods, providers LVMH. Any others?

Hugh Hendry 50:59
Well, I, I put a tweet out the other day. LVMH is about 10%. Off, its all time high. And so LVMH is the largest cap stock in Europe. It’s one mental trick that I use was you where’s the where’s the comparative advantage in unite in European equities when you were worried where the stocks I can’t find anywhere else. And, and that was luxury. But I can’t shake off a doubt that, especially China, and everything that the clamp the cultural clamp downs, you know, in the UK, in the 1970s, they had this disastrous policy where they decided that we could not have a lead to education that everyone had to be treated the same. And so effectively, we brought everyone to the mean, which is catastrophic. We need you we need fireworks, we need the adventurers we need the the entrepreneurs that are going to shake up and redesign the future. And if you bring everyone into the what is colloquially called a comprehensive system, you’re producing grey when you can have rainbows. And China’s seems to be doing that, you know, it’s been locking up the being locking up the wizards who unlock themselves who made great fortunes is coming into the education system say you can’t pay for extra extra courses, you have to be great. You can’t be the rainbow. And so, you’re not far away from saying, Well, you actually, we feel uncomfortable with you peacocking and parading your wealth wealth, you know, especially when you reset to kind of zero GDP growth. Do you really want people peacocking within? You know, that kind of party system? I don’t know. If that gets taken away, then that’s an issue.

Nathaniel E. Baker 53:03
Yeah, yeah. Because LVMH and the other European luxury, American, they sell a lot of stuff in China don’t.

Hugh Hendry 53:10
Yeah, I mean, China. The China’s the reason that they’re enormous market cap. China’s The reason plus they’ve executed well, I wouldn’t touch LVMH.

Nathaniel E. Baker 53:19
Okay, cool. Henry, I want to take a short break in this fascinating conversation, and come back and ask you some more about yourself what you’re doing these days down there in St. Barts some other things, and some might Yeah, some other stuff. So let’s do that. But before we do, let’s take a short break. To let our sponsors be heard if you are a premium subscriber. Do not touch the dial. You’re not getting the break. We’ll be right back. In fact, we already are.

Nathaniel E. Baker 54:02
All right. Welcome back, everybody here with Hugh Hendry. One of the OG contrarians who I have a list on Twitter. And that I’ve added you to OG contrarians congratulations. But this is the part of the show where we ask the our guests about themselves a little more about their personal and professional background. How they came to this station in life. mentioned you’re in St. Barts. Obviously you had a long career managing money. So it took us aback a bit how you got your start. Yeah, I’d be curious how that how you got into investing in the first place. And then yeah,

Hugh Hendry 54:37
yeah. So all my favorite books are all like kind of rock people and it’s all about you know, they’re the light bulb moment was hearing Bowie or, you know, being BCBG or whatever, in New York. etc. You know, being part of eight people in Manchester seeing you know, the sex pistols from sheer for me is less romantic but it’s just been my mind just as powerful because yeah, I was a kid from a project and mean and nasty pure project in Glasgow, rain time. And I came from a society where you didn’t go to university. And so if you will, I was the hero kid, you know, the entitle kid, that kid that could do no wrong, but kind of the kid who was alone, bringing themselves up. And it kind of stamps you in terms of typically that profile makes you successful later on. Whether you find happiness with internal happiness, you know, like, Steve Jobs isn’t with us, because of the, you know, the crimes and misdemeanors that come with that imprinting from, from early on. I, I now have to tell you a great confession. So my father was a truck driver, that’s not a confession when you start from that station, and and I want to say that I didn’t want to go to university because I was born I had I had work was proposed, they’ve worked so damn hard. In the four years prior to that, I felt like I needed a break. But you know, thankfully, there were adults in the room like, no, no, like, you’re going to do this. And I want to say I’m making a creative type, I’m not a detail type. And so I filled my university University application form in incorrectly. And because my grades were good, I got automatically filled, and unfortunately, was the wrong way around. Like I joined University in 1986. And, remarkably, they had a fantastic course called technology and business studies. So they gave you economics, management, and they allowed you how to write court. Yeah, this is like, you know, 10 years, or NASDAQ Stock margin. That was my second choice. It was my first choice, but it expresses my second choice, I didn’t get it. And instead, I find myself studying accountancy Countess economics, a joint a joint degree. In the fourth and final honours year, I was introduced to something called market based accounting research. And so we had data stream, and we know, everyone’s too young never did a stream was this kind of a rudimentary early price database system. And I was charged with, you know, the null hypothesis, do markets respond to signal or noise? And so two different situations that company changes its depreciation policy, it affects profits, but it doesn’t affect the the absolute worth of the business, what does the market do and versus another, another signal event, and your 90 days before 90 days afterwards, trying to define normality? And from I was up, so So that was my baby mom, I was absolutely. In ruptures, it was like a tempest. What would happen, what would happen if I had my prejudice, and then it was just out of the gloom and all this kind of black and green low pixel, that got me applying to the investment, the notable traditional sector of pension fund investment management partnerships in Edinburgh. And, and a lot of you, myself and myself, embedded with serendipity have have taken me this far in so the serendipity the the wonderful company that took me on, we’re under pressure to be more egalitarian and to have to source more widely, their graduate intake prior to me being like exclusively, up Oxford and Cambridge. And they were trying to break into the American pensions market. And the consultants were saying, Yeah, we need more. And I come into that. Serendipity. I met you one of the great European hedge fund managers. And he, he identified a lot of himself and he said I was a pirate.

Hugh Hendry 59:35
Sadly, the days of pirates and along what was that I am in the Caribbean, you know, but my ship sank if you what’s there is no. H one sec to know, like the pirates became the Royal Navy. I mean, this actually happened in true life back in the 17th century, or whatever, where the British government said, hey, look, we’ve got a problem with these pesky Spanish, why don’t you join the team? We’ll give you up solution we’ll pay you knock the note. You know, kind of that’s the story with hedge funds today.

Nathaniel E. Baker 1:00:09
Is that Crispin Odey, you’re referring to?

Hugh Hendry 1:00:13
and then I three notable things. So Crispin was, life is very rigid. There’s almost like a caste system where where you were born, or who you were born to almost determines which bank or operation that you achieve. But in that world, you’re in parroting customs and ways of reacting. I didn’t have that. Right. So I’m original, I’ve got the original sin, I’m making it up. And Crispin was wonderful for that, because he’s like, he made it on playfulness. And curiosity. Being a troublemaker, yeah. And that’s how you get flow. And sometimes before, sometimes you briefly get a glimpse of things, which ultimately happened. In Edinburgh, I’d be analytically. I tell your story in Edinburgh. Each day, someone would come in deposit. I swear 100 new reports on stocks and economic reports. And I was meant to go through them all. And then in the early years, distribute the good ones to the managers. And I’ve worked beaver initially on this. And then the afternoon, enough of 100 GM, it kept coming. So I was kind of like, in the mafia and trying to dispose of dead bodies. And I would surreptitiously when no one’s looking, I’d kind of like put it into a supermarket bag. And I walk out of the office. And literally, I’d walk for a mile two miles to the other side of Edinburgh, and put it into public West, then. But when I got wiygul, Chris, someone just refilled me, my life is constantly like, and all we were doing was rehearsing the past year, they were controlling, controlling risk, through superior stock selection. That takes us so far, but then they miss the point when the superior business becomes the less than superior. And the gap. And the damage on that is profound. But as a firm of a wonderful firm, so crisp and taught me the grid inside of my career was a being trained with the conceit and the arrogance of a well formed arguments. And that had, I’d never made money from them. And crisp and taught me how to tame the arrogance of that by using charts. Use that all this is like a software inventory management system to say, okay, maybe. But you know, what today? Does? I’m not seeing when I look at this pool of strangers, I’m not seeing any legitimacy. Okay. I mean, the most profound thing that I ever heard, and at the time, it was greeted with ridiculed by me and by by my peers, was a fellow analyst at the time saying, Yeah, we, we bought it because it’s going up, which is the driven is genius. But that was the most profoundly silly thing you could say, given that they were operating on conceit and arrogance of well formed arguments narrative. So Chris been kicked out of me. And with that knowledge, I was able to see your tech stocks were going up in 1998 9999, do those price levels to those, and I bought things going up. And then when they reversed, I had a whole playbook of things to do. So when European stock markets fell 80% I was running a mutual fund, and we lost no money, but I think we made 3% cumulative over that period versus 80% drawdown by the majority of other managers

Nathaniel E. Baker 1:04:07
by being in cash?

Hugh Hendry 1:04:11
the peer group says please, cheating, you know, you should always be fully invested in it, like where does it say you should always be really invested. You know, there was always a provision, you could have 10%, you could do anything with 10%. So that was gold. And then you had a situation in Switzerland, where the pension funds had a guaranteed rate of return that they had to they were obliged to make. And the 10 year yield was beginning to I think it was 3%. At the time, the 10 year yield was beginning to break three. And as it breaks three, you’re bankrupt. But you better buy as you will buy as much as possible at three a 2.99 a 2.98. Because you’re you got it you’re going bankrupt But slowly, and so I was able to read that in various and cash policies and And then just I, I was already sensing the change the emergence of China and how it would influence the perception of what a good business was. So good businesses, a good cyclical would have been WPP knew the advertising company, a bad cyclical would have been Rio Tinto, BHP Billiton. And I could sense that China and its imprint on them as the marginal buyer, that the marginal price would be a lot higher and the perception of those businesses would be greater so began to get that lead into the first year as the hedge fund. And I got gold. Remember that I did. 1000 PhDs must work for the Bank of England. They had one of the best Chancellor’s Gordon Brown. That’s a political appointment, but he was a studious smart guy. And all of that genius. Of course, all it created was conceit and arrogance. And the they elect to sell the majority of their gold holdings. Did they sabotage it? They sell it to floor state mines like myself? Why did I get gold, I had a, an religiously silly evening in Milan, in a silver prior to suit, which I do not drink Red Bull, but back then, for my sins, I had Red Bull vodka. And I woke up the next day. And I had been dreaming of The Wizard of Oz. Like it was on an old television. And it was going on all the time. I got back to London, my wife Thorlos they’ve been taking mushrooms. But I just knew I had to buy gold. Jim, I couldn’t really take down the bank of NZ. Oh, you know, they’d be like, what? Like, what what should we have done? Like we are PhDs and we were smart people grant that, but that doesn’t guarantee your success.

Nathaniel E. Baker 1:06:52
So the the esoteric and the kind of these these almost supernatural experiences sound like they do sometimes lead you to get investment decisions. Yeah. Have you had any recent ones?

Hugh Hendry 1:07:07
No, as I try, as I may, you know, I do not have a Bloomberg. God forbid, you know, I came. I wanted I sometimes I see I died in active combat. You know, a man I had my AI success that I I caught myself was achieving tenure. I achieved 15 years of managing the hedge fund. The majority failed the question. 15 is like an is dog life as a long time. But I felt it become joyless again, the pirate had was becoming more of the you know, the captain on the bridge of the the Royal Navy. And there was an I went on Bloomberg to announce my retirement and I said I died in active combat. And coming to this island. There’s a soft that nature provides a soft focus. And there’s a psychological concepts of focus, which is recharging of the mind. I had hard focus for 1530 years. And it depletes your memory and your reserves. And again, remember, I spent a lot of time going. I was I was never positioning, I was never the mainframe, I was always over here. And most of the time losing battles. And so most of the time, I was saying oh my god, I literally have I always say I’m going to your, you know, exploitive, exploitive, like your mind. It only works on the basis of trust, like you tell it you’re gonna die is like, oh my god, we’re gonna die. Like we’re I didn’t realize we were, you know, in Afghanistan, or God forbid, wherever else, and it floods you with this retask combination of nasty chemicals. And so I needed healing. And yet, those I mean, in some respects, I’m a paranoid schizophrenic, I hear voices in my head. And I don’t know where they come.

Nathaniel E. Baker 1:09:06
Actual voices or just metaphorical?

Hugh Hendry 1:09:09
Metaphorical. The subconscious processing they, I’m not aware of it, but I’ve just been trained. I’ve had a lifetime trading, and it revealed itself in the early days where you would meet someone from the industry. And I’d hear myself talking about the current state of play and I’m like, like, do we know? Why do we know is some kind of secret door Wi Fi system which is downloading on me and from 2020 I kind of reemerged from my mind cave. You know, there’s a lot invested in yourself when you close your fund. That again, that’s that’s hard. But I find myself able to, to discuss what I’m seeing. One of the one of the great things we haven’t touched upon, again, is this kind of Americans or the system, I can see, I can feel a remedy. And like a very obvious political thing, which would be to, to insist that the American journalists actually pursue endogenous growth and just deal with the consequences, it’s not our fault that the CCP might be kicked out into the deal with it. And if they insist on labeling us with this profound pool of surplus, which creates speculation, and therefore vulnerability within our economy, we should ask them to pay for it, you’ll pay for it in the sense of an annual recurring withholding tax, they will pay it that, you know, they’re not hedge funds, you know, that $7 trillion of treasury holdings isn’t there to make a commercial return is there to prop up and create the perpetuity like desire of the CCP, charge them for it? And one of the things I’m seeing one of the things I like is taking, what would they be the call options on the dollar cnh Cross, which is to say, the remin be weakening, okay. Those options are cheap, because as you know, trade flows just now a dominant macro hedge funds are very aware of that. And they don’t really want to step in the way there, the trade balance as a percentage of GDP for China is back at the highs, it’s like 8% of GDP. And that’s why the options are cheap. But Euro leave, they have this profound desire to print 5% GDP growth. And in the last 10 years, more than a third of that growth was achieved from property speculation from negative NPV net net present value infrastructure projects from bus rail trains, to bridges, etc. And don’t forget just

Nathaniel E. Baker 1:12:01
good old making it up. But yeah,

Hugh Hendry 1:12:04
well didn’t even have to make it up. It’s weird. We’re gullible. We all like good stories. We’re no one dives deep. The truth, the truth was always there in that you can choose to create GDP growth, if you’re willing to forego wealth. So if you look at the Chinese stock market over that, I think, where’s it listed from 1996. So they haven’t created wealth. That was that was always there or was apparent. And and you you’ve seen this situation where the Bank of Japan is resolute in his willingness to keep the 10 year shackled to the floor. And so the Yen is being weak and you’re reaching points. The Yen renminbi level is that level of meds? For if the yen, we can father, our Chinese friends will not like you, they may not have liked Nancy pain. In Taiwan, they will not like for the yen weakness from here. The thing you have to remember is Taiwan. And other Taiwan, the Taiwan from the 1990s they devalued in the Asian Tiger crisis, they had very little dollar indebtedness. They weren’t struggling. But if you’re American tourists, and everyone takes a haircut on their price on their currency to get a leg up. If you don’t react, then it becomes a permanent loss of competitive business. So beware when you see a nature, mercantilist name nation, which is using undervalued currency to compete in overseas markets, when it has a big weakness, worry about the other mercantilist nations in the interest. So maybe you know like and you don’t have to be bold like you do all the cnh is 675. You can buy SEVEN, SEVEN strikes seven and a half strikes. The Vault the implied and the realize that are not that far removed. And the out of the ordinary happens then you would get an out of the ordinary return.

Nathaniel E. Baker 1:14:32
Yeah. All right. So long USD short RMB. And you mentioned here the mercantilism. That’s an interesting point. So you have China obviously the main one. But then Japan, I mean, aren’t most just about all countries in Asia? The big ones are exporters. Right. Sorry. You’re famous. Yeah.

Hugh Hendry 1:14:49
And also the they’re all mindful and guided by the eras of the late 1990s. Yes. And that’s why they’re very reticent to pursue endogenous domestic growth, you know, the, they don’t want their citizens, you know, think to think of how the world could be different. And the Chinese enjoy comparative advantage is that they, they’ve, they’ve been incredibly good at putting it laying down amazing infrastructure and infrastructure in the Midwest, and the United Kingdom is just a disgrace. And it’s it crosses facts, political factors that I don’t know why, but they’re all agreed that infrastructure is not the place to go. The Chinese haven’t got that. And, you know, when you’re running an 8%, current account surplus, not current trade account surplus, the trade account surplus today is more than 1% of global GDP is enormous. It’s a trillion dollars. I the system that I grew up understanding and respecting the market based system would reprice the dollar renminbi to five if not four and a half. Yeah, and we’d see what happens then. But in doing so, and so I’m Chinese, I’ve moved from tilling land with new fertilizer, to working in a major metropolitan, inside some billion dollar plant, and the productivity side is insane. But I, so I get paid multiples of what my grandparents got. And, and I think that’s good, but it’s, I’m being underpaid versus what I bring to the game. And if we were trading at four and a half, I’m richer, what is four and a half would be what 30% if not more, maybe theoretically, make money in terms of buying, maybe I could afford a BMW made in whatever your province of Germany, they make these things, you know, you imagine being your currency could buy 30% More 40% More. That’s, I didn’t think of the knock on impact in terms of being an American based manufacturer of whatever they desire, and how your demand lifts sway. We’re in a we’re in a global depression. This form of mercantilism is just keeping as you know, tied to the floor, we have to break it. And, and then I added the conception that so I believe or I’m intrigued by absurdity. The end we saw absurdity, we we mentioned Volcker earlier. And I remember reading Michael Steinhardt, the legendary macro hedge fund trader, he got food he was piling into treasuries, and he got sued by his clients, because his returns were miserable until he got the Turner for style drift. He Why are you not in equities? Why are you not Dillard? Why are you losing money, you idiot. And you have to remember that your Volcker did raise interest rates in the worst economic downturn ever. Apart from to those in the knees? You imagine we raised interest rates into those. I mean, I know the ECB India’s good. But imagine the Fed came in in and kept raising interest what Volcker did. And so but whilst inflation was high at the beginning of his tenure in 1979, by 1982, I mean, we’d have to be on a drip in our hospital in intensive care not to notice that inflation was rapidly coming out of the system. And yet, and so the absurdity was rates, peak tenure peaks of what 16% In around August 82, like almost taking micro. That’s absurd. So, and that was the turning point. And so I don’t know what I am, though. So but it’s representative of my thinking, do we make new lows in the 10 year treasury. And that, that, that is the equivalent of trading 16% on 10 year yields. There’s like you’d have absurdity and you’d get the opening and the closing absurdity to an enormous bull market. And then I’d think back and I said, Well, how would that happen? And I mean, that happens if, believe me, if China devolves and takes the remember to nine. Everything ever is Mad Max world. And it’s not as ridiculous proposition you the Chinese property market top ticked at $90 trillion. The economy is supposedly 15 trillion, without any evidence of wealth expansion and the The market is three times greater than the US bigger. It’s just the wrong Mark. How are they going to deal with that you have large swathes of households not paying their mortgages, I think rightly so. But strategically, one weighs 20% devolve, takes the dollar value of that property don’t. And again, with the action in Japan, if it were to get out of hand, and the yen were to weakened considerably. We’ll see. And then, you know, the silly thing with the streets of Taiwan and your china, I was quite early this year, in voicing my fears and raising the probability of China Taiwan dispute would be kind of tail, they raised it to about 20%, earlier this year, which is preposterous ly high figure, and events seem to, unfortunately, keep coming back and kind of legitimizing new unknown tail percentage. And the reasoning, the thing that struck home was China will never have a stronger bargaining position visa vie the rest of the world visa vie the US, they will never have a stronger bargaining position. Because we invested so much in the belief that you’ll be brought them from poor abject poverty to be part of the club. And the view was that at some point, they would pivot, and we’d have a rich trading nation, that would be less subject to funky politics, like communism, and, and the rich trading partners make everyone rich, ie their currency with Dharma ppreciate, and actually be able to sell them more things, and their consumers would be allowed to buy things and mess things up or not mess things up. And none of that is being allowed to happen. And your whilst we can impose sanctions on Russia, Russia, going into this mess was about 1.8% of GDP. It’s an irrelevance. When I read I mean, Europe made it relevant by the astute parody of a generation of political leadership, you know, the I think the Euro tree, is it in the 80s versus the dollar, because why not? You the sovereign as a sovereign because it has secured a perpetual stream of, of low energy, lower lows, a low cost, sovereign energy source, and he’s failed to do that. Europe is not a sovereign. Russia demonstrates not. That’s not the case with China. China is so embedded, we are so dependent on them for so much. But in 20 years time, we will be less dependent. So if I really wanted to do something crazy, and I was Chinese, my window is now I’ll never be stronger than I am today.

Nathaniel E. Baker 1:23:11
Yeah. But what do you make of the argument that the Chinese like the moment they attack Taiwan, the US would cut off the shipping straits in the Middle East, and they’ll be the end of their oil imports other than what they’re getting from Russia? Overland, I guess. And that’ll be the end of any expansion, any military? Industrial?

Hugh Hendry 1:23:31
You know, we would have been tough to see. But imagine we got to the point of having that debate. You know, I think you would be trading nine if not 10. On dollars on edge. Oh, yeah. You know, what Russia demonstrated was, you speak to every expert, what, what was the chance of lard the bad? I actually doing it? You’re, you’re you. You signed your death warrant at that point? What did he do? Oh, um, and so we let him since the dawn of chaos, we, you know, asset prices are elevated because asset prices like smart decisions. They like certainty. The not If not certainty is like, they’re gonna kind of push comes to shove, they will go rational. They won’t go irrational. Right. 70s was an irrational, you know, Russian goes into Afghanistan. Iran takes American hostages. America kind of doesn’t come in hard. We the Iranians could believe like, we took your hostages, and you’re not invading the country. Oh, my God, you guys are wimps and, you know, a narrative for the next 40 years is established that we can kind of push and kind of have a go, you know, there was a crazy, crazy time, the 1980s the 1990s. The 90s Things got better. We got globalization walls came down, people got richer. The European Union was inclusive, you know, There’s no one waiting. We have Brexit we have Trump. You know, talk about social revolutions. Francis on the edge. So Macron got through was was remarkable by now. Internally, he’s lost a lot of power. It’s gone that way. And you see it everywhere. So

Nathaniel E. Baker 1:25:18
maybe it can we just in closing, I’ll tell us how we can find more about you?

Hugh Hendry 1:25:22
I’m so glad to say I have launched a substack.

Nathaniel E. Baker 1:25:28
Cool.

Hugh Hendry 1:25:29
Hugh Hendry. Either HughHendry.com or this substack, I’m on Twitter. Hendry underscore Hugh. I’m on Instagram wearing my bikini in St. Barts. You Andrea Fisher. And likewise, a YouTube. We put out a weekly podcast right? And I get a I fall into this shaman like state and some nights you’ll find me probably drinking tequila on a on a tropical island. And writing, writing Gonzo finance, urging everyone to buy acid capitalist baseball Cup Champions Cup. Later, man.

Nathaniel E. Baker 1:26:11
All right. Very cool. You thank you so much for your time. Thank you all for listening. And with that, we look forward to speaking to you again next week.