Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wasn't and I'm Tracy Alloway. One of the questions,
Speaker 1: and of course that I would say, in part due
Speaker 1: to one of our recent episodes, that people are debating,
Speaker 1: is the role the future of the dollar, And of
Speaker 1: course people love to debate this for our entire live people,
Speaker 1: this is the dollar doomed. Just do you an going
Speaker 1: to replace it? It's going to be replaced by golder,
Speaker 1: big Klin or something. But with the sanctions, with Russia's
Speaker 1: loss of it loss of its FX reserves, I feel
Speaker 1: like this is a This debate has gotten new energy.
Speaker 1: I distinctly remember my dad sending me articles about Iraq
Speaker 1: switching to Euros for oil payments from many, many years ago.
Speaker 1: So yes, this is an ongoing debate, but you're entirely right,
Speaker 1: new life has been breathed into it. And you know,
Speaker 1: most recently we're recording this on March and just yesterday
Speaker 1: we Sawrussia is saying that it was going to start
Speaker 1: to demand gas payments in rubles. So there is there
Speaker 1: are things happening on this front. But even something like that,
Speaker 1: you see people portray it in two different ways. So
Speaker 1: on the one hand, there are people out there saying, oh,
Speaker 1: look this is the end of the petro dollar. Russia
Speaker 1: has kicked off this entire process. And then other people
Speaker 1: are saying, well, no, that's not what it is at all.
Speaker 1: In fact, this is a sign of you know, Russian weakness.
Speaker 1: Basically they can't get foreign currency at the moment, so
Speaker 1: they have to do this. So there's so much debate
Speaker 1: on this particular topic. Yeah, it's like a big I
Speaker 1: would say, it's also just a big ideas moment. Earlier
Speaker 1: in the week, we recorded that interview with Victor's Fantis
Speaker 1: talking about the world dividing into two. So it's kind
Speaker 1: of a moment for big picture sort of reassessments of everything.
Speaker 1: And the dollar is sort of the key icon of
Speaker 1: the existing world, the reserve currency, but all kinds of
Speaker 1: like it's a moment to sort of step back and
Speaker 1: think about sort of things that we take for granted
Speaker 1: and what could change. Yeah, and also I think whenever
Speaker 1: you get this level of uncertainty, people try to fit
Speaker 1: their own narratives onto it, and so things that they've
Speaker 1: been talking about for many, many years suddenly this is
Speaker 1: the thing that is going to propel those into existence
Speaker 1: or into life. But yes, big picture, big moments. So
Speaker 1: I'm very excited about our guest today, someone who has
Speaker 1: always had a very provocative ideas in the world of
Speaker 1: global macro all kinds of things, things related to currencies, China, gold, etcetera.
Speaker 1: One of the most interesting people in the space for
Speaker 1: a long time. We're gonna be speaking with Hugh Hendry.
Speaker 1: He was the founder of Eclectic Asset Management and now
Speaker 1: he is a luxury hotelier on the island of St.
Speaker 1: Barts and he seems to be living a life that's
Speaker 1: much better and more interesting than ours. His website, Uh,
Speaker 1: you know, go check it out. Hugh, Thank you so
Speaker 1: much for coming out. What have you been up to?
Speaker 1: Because I first became aware of you, you know, probably
Speaker 1: over a decade ago watching years you made on YouTube
Speaker 1: about Chinese ghost cities. But what do you what have
Speaker 1: you been up to? Hey, hey guys, to be on
Speaker 1: Thank you. I have been I've been recovering. I've been
Speaker 1: rehabilitating my my weary mind. You know, I had had
Speaker 1: many years of active intellectual combat. The Eclectic Macro Fund
Speaker 1: ran for fifteen years en yere that I achieved. It's
Speaker 1: not the tenure you get as a professor at some
Speaker 1: of these Bologna economic universities where you can you can
Speaker 1: proclaim whatever and never be called for it. But fifteen years.
Speaker 1: But at the end, and the end was I was exhausted.
Speaker 1: I mean, the thing you have to remember is we
Speaker 1: have this amazing organ inside our head, this brain, um.
Speaker 1: But the thing is it lives in a dark chamber.
Speaker 1: There ain't no light getting into that brain, and it
Speaker 1: relies on the idiot on the on the outside to
Speaker 1: tell what's going on. And I spent I swear I
Speaker 1: spent fifteen years thinking I was gonna die. Not every day,
Speaker 1: not every day, but there are moments in investment campaigns
Speaker 1: and you think, oh my god, you remember I was
Speaker 1: I see things, um. And it's a curse because I
Speaker 1: normally see things before other people. I've got to deal
Speaker 1: with other people catching up. Um. And as a consequence,
Speaker 1: there are days when you're out of sync with the
Speaker 1: world and your P and l B leads and you
Speaker 1: can since your brain brain doesn't know, and your brains like,
Speaker 1: oh my god, we're like you know, this is a
Speaker 1: flight moment, and you get flooded with all this toxic
Speaker 1: chemistry to get you out of the hole. So fifteen
Speaker 1: years of all that nasty chemical reaction I needed. I
Speaker 1: needed five years to or yeah, five years to recuperate.
Speaker 1: And what a what a better place I can't think
Speaker 1: of any are than this beautiful island in the middle
Speaker 1: of nowhere, this tiny little volcanic rock where it's a
Speaker 1: bit like golf clutches where all the successful people come in.
Speaker 1: They're like peacocks, Like, look at the size of my
Speaker 1: super yacht. You know, Yeah, I'm making hay And I said,
Speaker 1: I watch it. I accommodate it. I built beautiful, beautiful
Speaker 1: villas for for rental under the brand Long Blue. And
Speaker 1: then since the body snatching alien invasion, the v in
Speaker 1: and I don't have access to the dear old beloved
Speaker 1: Bloomberg terminal, but I tell you it's in the air
Speaker 1: waves or somewhere because I'm drawing down stuff. And I'm
Speaker 1: glad to say that. Invigorated, I began shading again. And
Speaker 1: so I have podcasts. I'm on Instagram in my swimsuit. Um,
Speaker 1: and what am I doing? Yeah, and doing podcasts, etcetera.
Speaker 1: So I'm telling like it is, well, I mean, I
Speaker 1: gotta say, it's it's raining and cold here in New York,
Speaker 1: so hearing about um, your very glamorous life in St.
Speaker 1: Barts UM isn't helping this morning. But I'm glad you've
Speaker 1: recuperated in terms of what you're seeing right now. I mean,
Speaker 1: you are still very much paying attention to what's going
Speaker 1: on in markets and the world more broadly. It seems
Speaker 1: like just looking at your Twitter feed and your videos
Speaker 1: and things like that, what are you seeing right now?
Speaker 1: You know, lots of people are talking about this as
Speaker 1: a turning point in world history and possibly in the
Speaker 1: economic order. As Joe and I were discussing in the intro,
Speaker 1: what do you see? Oh my goodness, how long do
Speaker 1: you have speed? Wait? I see confusion. I see talking
Speaker 1: about what they would like UM and kind of failing
Speaker 1: to understand um. And that sounds very pompous. And let
Speaker 1: me be more even more pompous. Very few people I
Speaker 1: mean and encourage, I want to say, But like with
Speaker 1: one hand, I I start to struggle to use digits
Speaker 1: once I reached the fifth digit. When I nominate the
Speaker 1: people that actually understand money right, and that includes economists,
Speaker 1: that includes the biggest hedge fund managers, the bankers, and
Speaker 1: it's bluff includes the Federal Reserve. So few people understand
Speaker 1: the concept of money. And and so when we get
Speaker 1: these dreadful political moments that we're seeing with the invasion
Speaker 1: in Ukraine and of course the greatest tragedy, the loss
Speaker 1: of life, the change of dramatic change and lifestyles being
Speaker 1: dragged eighty years back into the past. It's horrible, but
Speaker 1: it's it creates this energy where people kind of dust
Speaker 1: off prejudice. And so I'm there on Twitter, as you say,
Speaker 1: and I'm kind of just trying to bay but a
Speaker 1: straight ball and just like keep it logical and and take, um,
Speaker 1: take the narrative kind of closer to I can't say
Speaker 1: the truth, but just try and kind of educate people.
Speaker 1: Like this thing about money. So dollar dollar, dollar, dollar
Speaker 1: doll change, and I think we're within the proximity of change.
Speaker 1: Changes is sweeping. You know, the kind of description that
Speaker 1: you gave it, this pivot in history. Um, it ain't
Speaker 1: gonna come in a linear manner, and it ain't going
Speaker 1: to be forecast by the street. Okay, It's gonna come
Speaker 1: at you from weird angles and it's going to confuse
Speaker 1: you okay, and I want to put it. If there
Speaker 1: is going to be changed, we have to put it
Speaker 1: in historical context. And there have been three previous changes.
Speaker 1: And and as I say, I think we're close to
Speaker 1: a force the changes. And what I'm talking about really
Speaker 1: how sovereign nations choose to regulate their external affairs, their
Speaker 1: commerce with each other, you know. And up until the
Speaker 1: late nineteen twenties, those the affairs of major sovereigns were
Speaker 1: regulated by the transfer of gold. And then gold acted
Speaker 1: as high powered money and it allowed for it facilitated
Speaker 1: the private banking sector to create money or to take
Speaker 1: money away. Okay. And no system is perfect, and the
Speaker 1: flaw of the gold system was exposed, the frailties were exposed.
Speaker 1: Its lack of kind of flexibility and response function to
Speaker 1: the near bo to the bankruptcy of the US banking
Speaker 1: system in the in the nineteen thirties, meant that it
Speaker 1: ceased to exist. It wasn't a solution, you know, It
Speaker 1: had created um a depression, and therefore it was rejected
Speaker 1: by the many. It was then, and it takes a
Speaker 1: long time to replace the system, and the system was
Speaker 1: ultimately replaced about fifteen years later, with bread and wood,
Speaker 1: which was essentially a kind of Ledger reconciliation of the
Speaker 1: Second World War. But and of course it was still
Speaker 1: it still had gold in its in its lexus and
Speaker 1: it and it used the dollar as a kind of
Speaker 1: as the mechanism around gold and then unheralded and unnoticed
Speaker 1: by the many, but around the Laate the mid nineteen sixties,
Speaker 1: the bread and woods system came to pass, and it
Speaker 1: came to be replaced by the euro dollar system. You know,
Speaker 1: in the run about British banks began to allow customers
Speaker 1: to borrow in dollars. When you get a loan from
Speaker 1: a bank, a bank is creating money. And for the
Speaker 1: first time run about that date, banks outside the regulation
Speaker 1: and the domand of the Federal Reserve of America began
Speaker 1: to create U s dollars um And then that really
Speaker 1: exploded when we had the petrol crisis, the petrol currency crisis,
Speaker 1: because effectively that created a huge amount of deposits which
Speaker 1: were put on the accounts of these overseas banks, and
Speaker 1: deposits a reliability and those banks needed an asset, which
Speaker 1: is a loan, and so they really took off in
Speaker 1: terms of dollar printing, making loans in US dollars, and
Speaker 1: that system has prevailed and it reached its apex in
Speaker 1: the years two thousand and four to two thousand and six,
Speaker 1: two thousand and seven, but it was mortally wounded with
Speaker 1: the housing crash in the United States in two thousand
Speaker 1: and eight. I want to say it died. And we've
Speaker 1: been operating ever since without a proper and and certainly
Speaker 1: a well understood means of regulating the affairs of sovereigns,
Speaker 1: and because we've not had a properly functioning means of
Speaker 1: exchange ever since two thousand and eight, the global economy
Speaker 1: has been subject and in operating under the confines of
Speaker 1: a depression. Not a great depression, it's called it a
Speaker 1: mild depression, but a depression. It's remarkable how we do
Speaker 1: not see that word in print. Now. What is the depression?
Speaker 1: My definition of a depression is when the recovery in
Speaker 1: g d P failed to take out the previous trend
Speaker 1: line in GDP growth. We have failed in a spectacular
Speaker 1: manner across the world, and I want to say the
Speaker 1: world is missing, very true and all it's worth of value,
Speaker 1: if you will, which is why we're creating this animosity.
Speaker 1: You know, one section of society is fighting the other.
Speaker 1: The gains are on the even they're not being distributed
Speaker 1: as we would hope. The pie is not as big
Speaker 1: as it should be. And that's because we've not been
Speaker 1: creating money. And into that, into that theater comes the
Speaker 1: absurd comes that you know, comes the Wizard of Oz,
Speaker 1: the Federal Reserve, and it's bombascity. They're like, hey, we're
Speaker 1: creating money. Hey over yere, Hey you want dollars, We're
Speaker 1: create Hey seven two we and dollars, No problem. You know,
Speaker 1: Bank of Japan, same thing, ECB, same thing. Okay, they're
Speaker 1: creating laundry, matt tokens. They're not creating money, right the
Speaker 1: Federals there, it is illegal. It cannot print money. Private
Speaker 1: sector agents create money through creating loans. US loan growth
Speaker 1: has been far supedia in the fifteen years or so
Speaker 1: since two thousand and eight. But for Supedia means like
Speaker 1: five six compound growth in Europe is like to right,
Speaker 1: that's the missing module. So I mean, I think you know,
Speaker 1: the point that you make about the missing money I
Speaker 1: think is well put. And and we've seen those charts
Speaker 1: of the pre two thousand eight trend line continuing to
Speaker 1: shoot up in this sort of extremely anemic. In the US,
Speaker 1: as you say, it was better off than many, but
Speaker 1: globally there's very anemic recovery. Now we're seeing arguably the opposite,
Speaker 1: and arguably some would say, well, having learned the lessons
Speaker 1: of two thousand and eight two thousand nine, governments didn't
Speaker 1: just rely on central banks this time fiscal expansion. And
Speaker 1: now we have some trend lines that are breaking the
Speaker 1: old trend lines, at least the pre trend lines. So
Speaker 1: talk to us a little bit about this shift, because okay,
Speaker 1: maybe the old system in a way, per your view,
Speaker 1: died in two thousand seven or two thousand eight. Now
Speaker 1: we see this other ship. What is the now? Help me?
Speaker 1: Help me, because you know, I it's funny, I I
Speaker 1: I've always been called a Contranian throughout my career, and
Speaker 1: yet I'm a trend follow where I seek the legitimacy
Speaker 1: of market prices, you know, by things going up nicely
Speaker 1: all things going down. Okay, so trends of any important
Speaker 1: to me. So it was rather provocative. What what trends
Speaker 1: are changing? Well, if you just look at something like
Speaker 1: US GDP or nominal GDP or nominal spending seemed to
Speaker 1: be on this sort of mediocre growth but upward to
Speaker 1: the right going up to February basically, and we got
Speaker 1: a huge plunge. Obviously it's the world shut down. And
Speaker 1: then this v that is now seems to at least
Speaker 1: by some measures, gone the other way and not just
Speaker 1: returned to trend, but shooting above it. Do you think so?
Speaker 1: I just like just some lines I've seen, these are
Speaker 1: kind of you know, like, yeah, I'm a data junkie.
Speaker 1: I can give me more and more, okay, Like so
Speaker 1: when I when I see one year, I want to
Speaker 1: see in the context of twenty years, Like, look, we
Speaker 1: had an alien body invasion, right, you took the economy
Speaker 1: when we suspended global weekend all make activity for the
Speaker 1: best part of eighteen months, right um, and then when
Speaker 1: it switched back on, like on a base of like
Speaker 1: minus minus minus, the recovery was positive, positive positive, right.
Speaker 1: And and then before the supply destructions, that's clearly been
Speaker 1: a degree of overordering just to kind of get inventories
Speaker 1: back into situate as chaos as chaos just now, so
Speaker 1: I see no sign. I see no sign that the
Speaker 1: economy is doing anything, anything distinct from the trends that
Speaker 1: we observed post two thousand and eight, except it's just
Speaker 1: been amplified by this, you know, remarkable intervention from outer space,
Speaker 1: if you will. I want to go back to the dollar,
Speaker 1: but before we do, just one question based on that,
Speaker 1: what do you think about central banks, specifically the Federal
Speaker 1: Reserve now getting ready to raise interest rates given your
Speaker 1: assertion that you know, the economy isn't necessarily as good
Speaker 1: as it looks because of all the confusion and disruption
Speaker 1: that we've experienced. Hey, listen, it's not it's not my assertion.
Speaker 1: I'm simply commenting on the observations that I see daily.
Speaker 1: I'm commenting on the genius of the enormous treasury market. Right,
Speaker 1: this is an unprecedented situation in terms of where the
Speaker 1: fixed income markets have priced for the Fed to begin
Speaker 1: raising rates that the treasure markets going. Guys, don't see it,
Speaker 1: don't see it. Don't see it. You know, And you
Speaker 1: know what our record is like ten ten better than yours.
Speaker 1: Like you know, you always get it wrong. We always
Speaker 1: get it right. I mean, you do not need First
Speaker 1: of all, the principle function of the Federal Reserve is
Speaker 1: as a bank regulator for the for those with a
Speaker 1: license to operate in the United States. Okay, it's record
Speaker 1: in terms of being able to see the future, I'm
Speaker 1: afraid is not very good. And so they require enormous bluster.
Speaker 1: They invest in immensely in the almighty posturing of their institution. Okay,
Speaker 1: it's nothing versus the majesty of thousands, if not hundreds
Speaker 1: of thousands of small are and maybe not so smart
Speaker 1: people engaging with each other. And and it gets more
Speaker 1: and more interesting as you go out in time where
Speaker 1: people are kind of thinking about themselves, their businesses and
Speaker 1: how to protect themselves, how to prosper, and that brings
Speaker 1: in the role of hedging. And and it's the hedging,
Speaker 1: and it's the thousands of decisions taking which aligne and
Speaker 1: create market prices, and they create interest rate levels, They
Speaker 1: create expectations of where we will be, and those expectations
Speaker 1: are distinct and at odds with the federal result. Let's
Speaker 1: talk about the dollar. You sort of describe the sort
Speaker 1: of post Briton Wood system is having been broken since
Speaker 1: uh since two thousand seven or since two thousand eight,
Speaker 1: but nothing has clearly replaced it. There's no obvious new regime.
Speaker 1: As I said in intro and his lot, you know,
Speaker 1: people are like, okay, this is the end, this is
Speaker 1: the start. People are going to find some alternative because
Speaker 1: they don't like seeing that FX reserves can suddenly disappear.
Speaker 1: What is Is there something new? I mean, what is
Speaker 1: is is there a threat to the existing order? Is
Speaker 1: something new? You're going to replace it? Okay? So classification
Speaker 1: bread and woods, I said, began to be the unwound
Speaker 1: in a kind of somewhat private like undisclosed manner, by
Speaker 1: the emergence of the euro dollar market. Yes, yes, the
Speaker 1: end of the year. Yes, sorry, the end of the
Speaker 1: euro dollar regime, as you say, began to break in
Speaker 1: two thousand and seven. But what we can say is
Speaker 1: we can say that you know, originally we had a
Speaker 1: gold system and then we kind of dialed that back
Speaker 1: after the mass of the nineteen thirties that we have
Speaker 1: increasingly deployed U S dollars, So it was U S
Speaker 1: dollars with gold, you know, with the ability to redeem
Speaker 1: and receive gold um and then it became essentially a
Speaker 1: dollar based collap That is what the eury dollar system is.
Speaker 1: It's a dollar based collateral. So it's a dollar it's
Speaker 1: a dollar system, so whatnot. And it's and that is
Speaker 1: still the prevailing system. The problem, however, is profound conservatism
Speaker 1: on the part of banks, right because they messed up, right,
Speaker 1: they took too much juice from the fountain in the
Speaker 1: early two thousand's and they kind of they went busted.
Speaker 1: It wasn't for the extreme financial intervention, which I welcome
Speaker 1: by the Federal Reserve, we would have been talking great
Speaker 1: depression too. As it is, we're talking about a mild depression.
Speaker 1: So the problem you have is that that facility is
Speaker 1: still there, but it's encumbered by profound conservatism. And let
Speaker 1: me take that in. Let me take that into this
Speaker 1: weird tangent. I believe ext markets are not in a bubble,
Speaker 1: or if I was to caveat, i'd say, I want
Speaker 1: to say, like of listed stocks are not in a bubble,
Speaker 1: and even those which have profoundly high valuations, and there
Speaker 1: are not many, but the pinnacle of it would be Apple.
Speaker 1: You know, two and a half trillion dollars. You know,
Speaker 1: a few weeks ago was three trillion dollars, which is
Speaker 1: to say, was capitalized greater than the market capitalization of
Speaker 1: all German stocks, you know, the the notion that we
Speaker 1: have those kind of five fang stocks, you know, without
Speaker 1: the Ali Baba greater than the value of Japan, So
Speaker 1: stock single US corporations trading greater than the value of
Speaker 1: the stock markets of great sovereigns. And even then, I
Speaker 1: still want to say, I struggle to say that that's
Speaker 1: a bubble, and I want to relate that to the
Speaker 1: euro dollar market, because what it's saying is it is
Speaker 1: the pinnacle of this conservatism. Um. Like I say, a
Speaker 1: mild oppression. Commercial risk it's scary if you're a banker,
Speaker 1: is something that can bite you in the proverbio's you
Speaker 1: can it can affect your career. And so there is
Speaker 1: a crowding in two businesses which are perceived to be
Speaker 1: devoid of commercial risk, and now nothing is devoid. But
Speaker 1: then we have again, we have this remarkable incident of
Speaker 1: the virus where we have, you know, an unprecedented plunge
Speaker 1: in economic activity. And so that reveals again it's like
Speaker 1: the tide goes down and you're like, wow, these guys,
Speaker 1: their their profits were intact, their profits were up, Like
Speaker 1: all that happens. These guys just don't have risk. So
Speaker 1: what happens where is when when you can conceive of
Speaker 1: a business as being risk less, it becomes price less.
Speaker 1: You know, there is no upper bound to the valuation
Speaker 1: of such businesses. And it's the same phenomena when we
Speaker 1: had treasuries yielding forty basis points and of course negative
Speaker 1: basis points with the European sovereigns that I'm really really
Speaker 1: going to hack all for your listeners because again I'm
Speaker 1: going to go against all the propaganda. They get stuff
Speaker 1: done on every single day that is not a cause
Speaker 1: of the Federal Reserve or central banks buying treasuries. Okay, Um,
Speaker 1: there's there's no need for them to buy. The private
Speaker 1: sector can't get enough of those damned treasuries. And why
Speaker 1: does it need the treasuries because it needs the treasuries
Speaker 1: for the collateral to support and to create money. So
Speaker 1: that's why there's been a log jam. No, no, no,
Speaker 1: So Russia reserves okay, so reserves Okay. And again, if
Speaker 1: I haven't annoyed or aggravated your listeners enough, hey, I'm
Speaker 1: going to stay. I feel like you have a low
Speaker 1: opinion of our listeners. They're gonna yeah, keep going. People
Speaker 1: on Twitter. And when I say the B words, the
Speaker 1: screw light up. Now what is the B word? Don't worry?
Speaker 1: Don't worry. Uh. Let so let's preface it. The US
Speaker 1: makes lots, makes a ton of damn stupid mistakes. It
Speaker 1: gets careless, um it has you know, hey, like we
Speaker 1: all have dumb as politicians, um and and they make
Speaker 1: some you know, dumb unwise decisions and and sometimes that's
Speaker 1: militarily and it's overreach um and and wrong. Okay, But
Speaker 1: despite all of that, I'm gonna say that the US
Speaker 1: is like an empire, and it's a benevolent empire. The
Speaker 1: empires that have duration that persist, they persist owing to
Speaker 1: a form of benevolence. Right now, it's a self interesting
Speaker 1: you know that, it's a you know, it's we can
Speaker 1: keep in all of our Scottish economists and whatever in
Speaker 1: our invisible hand. Um is benevolence, which is on the
Speaker 1: basis that we will possiper from this. But for us
Speaker 1: to prosper we have to invest and encourage prosperity with
Speaker 1: our neighbors. So priming you know. The prime example, you know,
Speaker 1: the Second World War. We have the Marshall Plan and
Speaker 1: the US funds direct and guess the region back on
Speaker 1: his beat. That's benevolent, sure, But of course the US
Speaker 1: has has won that deal like many times over by
Speaker 1: having this prosperous, peaceful European neighbor that it trades with.
Speaker 1: Right done, great, wonderful. Same thing with Japan. You know,
Speaker 1: we had a problem. We fixed it, we paid it,
Speaker 1: we we we got it sorted. Great trading partner, another
Speaker 1: prosperous region in the world. And then China finally seeks
Speaker 1: a moment where it gets an avenue to kind of
Speaker 1: kind come out of the cloud of his political theology
Speaker 1: and it says, hey, listen, you know we want to
Speaker 1: be rich. And you know, and back in two thousand
Speaker 1: and one Clinton Clinton Science Offices, you know what, why
Speaker 1: not you join our club, joined the w T o
Speaker 1: trade with us. We're taking a bit the A rich
Speaker 1: China is a better China, China that wants to trade
Speaker 1: and get rich with us. Is is it China that
Speaker 1: enriches America? So I call that, I call that benevolence.
Speaker 1: Like was the Iraq invasion a mistake? Yeah? Okay, But
Speaker 1: you know when it comes to when I I traveled
Speaker 1: the world, I'm not all the time on this little
Speaker 1: volcanic rock. But I tell you, the only line outside
Speaker 1: embassies when people are seeking visas, the only line is
Speaker 1: the US embassy. Okay, So the US reigns supreme, and
Speaker 1: the dollar reigns supreme because it radiates freedom. You know,
Speaker 1: like people write songs about living in America, you know,
Speaker 1: like the Rolling Stones are incredible because it's the sound
Speaker 1: of l A in the nineties seven. You know, I mean,
Speaker 1: they're not writing songs about downtown Moscow. They're not talking
Speaker 1: about not writing songs about bag Dad, Okay, Right, as
Speaker 1: wonderful as these places culturally enormously rich, all right, but
Speaker 1: but there's no ing and zang, Right, they don't they
Speaker 1: don't offer what. They don't offer freedom assets. So you
Speaker 1: can trade, you can kind of prosper. But if you're
Speaker 1: not willing to create a free structure where you've got law,
Speaker 1: you've got order, you've got contracts, that things work right,
Speaker 1: where you don't have to seek permission to get married,
Speaker 1: blah blah blah, Okay, where you can't get confiscated, Okay,
Speaker 1: then you've got a big problem because you can't create
Speaker 1: the assets that foreign people like. The only countries that
Speaker 1: have consistently demonstrated this freedom access of the United States
Speaker 1: the United Kingdom, which is kind of small and irrelevant
Speaker 1: increasingly so, but in terms of that motivation, in terms
Speaker 1: of if you wanted to anoint triple A status in
Speaker 1: terms of political economy, the United States, the United Kingdom,
Speaker 1: and let's throw in Australia. You know, people want to
Speaker 1: buy their their sovereign bonds. Um, they've got big reservations elsewhere.
Speaker 1: So so the argument here is that banks are conservative,
Speaker 1: investors are conservative. They're looking for safe assets at the moment,
Speaker 1: that's mostly dollar denominated assets, maybe some things for Europe
Speaker 1: or maybe Japan or something like that. Is there any
Speaker 1: chance that the definition of a safe asset starts to
Speaker 1: change in the current geopolitical situation? You know, maybe there
Speaker 1: are countries out there who decide, well, freedom isn't actually
Speaker 1: that important to me, and I would rather align myself
Speaker 1: with someone like a Russia or China something like that. Okay,
Speaker 1: I mean really really so, like the wild GDPs a
Speaker 1: hundred tilling dollars approximately, right, Russia was one point seven
Speaker 1: rapidly heading to one trailing Okay, China fifteen, but you know,
Speaker 1: massively upstated you know, they they've they've reached fifteen without
Speaker 1: the ability to create wealth. You know, the stock market
Speaker 1: has gone nowhere for decades, right, be is they don't
Speaker 1: create wealth, they create GDP? Right, Okay, So I I'm
Speaker 1: I'm undecided. Um, So I've just I've said to you
Speaker 1: fifteen plus what's going to be one? So sixteen I
Speaker 1: can throw in my way with sixteen trill in dollars,
Speaker 1: or I can choose to trade, you know, with the
Speaker 1: happy clappy guys who actually create wealth and have GDP
Speaker 1: of avery four troy. Okay, what am I gonna do? Really?
Speaker 1: I mean, you you help me? What am I missing? No?
Speaker 1: I mean we have to ask the question. I mean,
Speaker 1: I've thought about this recently with the number of companies
Speaker 1: voluntarily leaving Russia even though the sanctions don't require it.
Speaker 1: Which is that ultimately, Yes, I'm sure there's a moral element.
Speaker 1: I'm sure there's a pr element in many cases, but
Speaker 1: also in many cases, I just don't think they're walking
Speaker 1: away from that much money. Yeah, absolutely, well, they're exactly,
Speaker 1: They're not walking away from much. And if they don't
Speaker 1: walk away, they jeopardize a lot, right, Okay? And and
Speaker 1: where where I thought you were going. Also is I
Speaker 1: want to say the sanctions that were introduced by the
Speaker 1: by the U. S side and elsewhere, we're t it
Speaker 1: like they were like like we're scared, like these guys,
Speaker 1: these guys crazy. You know, he's got a nuclear bomb
Speaker 1: and you know, and so we're gonna go slow. You
Speaker 1: remember the sanctions. You can, maybe you have to fact
Speaker 1: check this, but I'm pretty sure most of the U. S.
Speaker 1: Sanctions were announced at the start of the month with
Speaker 1: the notion that they be implemented, like on the twenty seven.
Speaker 1: You know, it's like really it's like, oh, we're gonna
Speaker 1: gonna go slow this guy. You know, it was the
Speaker 1: private sector. Private sector picked her up when too right, right, morally,
Speaker 1: we're outrage and and and secondly to your point, you
Speaker 1: know these countries because they're not free, they're they're they're
Speaker 1: down irrelevant, right, I'm not going to jeopardize like there's
Speaker 1: just no optionality in staying here, especially with the suicide
Speaker 1: policies they're pursuing. I'm not going to jeopardize training, like
Speaker 1: with the free world, to carry on in this theater
Speaker 1: of the absurd boom done. So this is not a
Speaker 1: Biden Victories is a of its sector Victory saying, like
Speaker 1: making choices a point emergement history, and you were asked
Speaker 1: to make a choice. History will judge you in the
Speaker 1: future in terms of those choice that you made. There's
Speaker 1: something that I wanted to ask you. Um and it
Speaker 1: sort of goes back to your experience um at Eclectica
Speaker 1: and also the way you think about things now. So
Speaker 1: you're known as a contrarian investor or a contrarian thinker,
Speaker 1: but at the same time, it feels like you're very
Speaker 1: a tune to trends in the market, to momentum. I
Speaker 1: think Eclectica was described as a momentum um hedge fund
Speaker 1: at one point. But how do you sort of square
Speaker 1: those two things? So thinking differently two what everyone else
Speaker 1: is thinking about at the moment. Yeah, so I have
Speaker 1: to point at ecliptic. What's called many things something on
Speaker 1: on a on a family radio show. Um. So yeah,
Speaker 1: people like, hey, well let me let you know. And
Speaker 1: I'm doing my questionnaires. So you're contraining. Okay, take the
Speaker 1: box you follow trends. Take the box really that these
Speaker 1: things are inconsistent, like you know, and I usually I
Speaker 1: have I always have to remind people that I I
Speaker 1: sound like a modon, but in fact I'm an oxymordon. Okay,
Speaker 1: so it sounds like you've learned that you've usually outlined
Speaker 1: before you think, so keep going. I got a lot
Speaker 1: of spare time. So hey, you know I read I
Speaker 1: learned from the master, you know, the George George Suros.
Speaker 1: You know, this is all sorts like you take understanding
Speaker 1: from the genius to the marketplace. You know, if I'm
Speaker 1: in a foreign city, I will go and eat in
Speaker 1: a busy restaurant, and nine times out of ten that's
Speaker 1: a wise decision. I won't past. I won't walk past
Speaker 1: like an empty restaurant going wow, yeah, I really got
Speaker 1: to eat there, right, you know, so there's a little
Speaker 1: bit of that. The biggest mistake, right, you see it
Speaker 1: with Tesla, Right, people put narrative. It's let me let
Speaker 1: me even let me take on another well rehearsed term
Speaker 1: from my lexicon. It is the conceiqu It is the
Speaker 1: arrogance of a well conceived argument. Okay. Your job as
Speaker 1: a speculator is to stop pile well conceived ideas. Okay,
Speaker 1: then your second job is to be an infantory manager
Speaker 1: and to remember that you have stopped this larger full
Speaker 1: of wonderful ideas. But you only get to play with
Speaker 1: those ideas when you get confirmation from strangers, when people say, yeah, yeah,
Speaker 1: this thing is going up, Yeah we got a trend,
Speaker 1: or the inverse, Okay, you know that's that's what I So,
Speaker 1: it's a humbling believe. I began with arrogance. I began
Speaker 1: with conceit. I began with with with like well formulated arguments,
Speaker 1: and I sat with a career going nowhere for the
Speaker 1: best part of eight years super education. But I was
Speaker 1: missing I was missing the Jesse Littlemore. Jesse Jesse Littlemore effectively,
Speaker 1: was the first real head fund manager operating at the
Speaker 1: turn of the previous century who actually, you like this
Speaker 1: ability to see around corners, he felt. He sends the
Speaker 1: San Francisco earthquake in what nineteen o way I want
Speaker 1: to say, um, Now, he didn't know what's going to happen,
Speaker 1: but he was so closely attuned to markets and how
Speaker 1: they were trading and trends that he had a sense
Speaker 1: that something was gonna give and you know something game
Speaker 1: that's that's that's the world that I'm talking about. Keeping
Speaker 1: keeping your thoughts pure to trend. Now again, that's not
Speaker 1: easy because just now, if you look at the US
Speaker 1: thy year, thirty year or ten year treasury bond, you
Speaker 1: um trends against you. So I mean I had a
Speaker 1: simple rule, you know, I would I would take the
Speaker 1: market CDs if if treasury ten years went went above two,
Speaker 1: their trading above two, I think that goes closer to
Speaker 1: to forty. Looks like they might go to three. But
Speaker 1: you know they can go all the way from forty
Speaker 1: basis points the three basis points. Heck, they might even
Speaker 1: markets are mendacious, right, they might even push the three
Speaker 1: twenty forty right, probably and I think most likely will
Speaker 1: mean revert back to the prevailing trend um. So you
Speaker 1: can get wide ranges. And so Marcus A. Humbling. You've
Speaker 1: always got to be listening, and you've always got to
Speaker 1: be able to take positions on and unfortunately take them off.
Speaker 1: So we just have a few minutes left. You're you're
Speaker 1: on this volcanic rock, the gorgeous island in St. Barts.
Speaker 1: The people you must interact with who stay at your
Speaker 1: properties hotels, some of the most successful people of all
Speaker 1: time in the history of the world. Um, you must
Speaker 1: interact what do you learn from them? Like you must
Speaker 1: like you know, in addition to running properties and of
Speaker 1: course you're amazing, uh you know, you're surfing life. You
Speaker 1: must learn a lot from just hearing and talking to
Speaker 1: the people that come through your properties. What do you
Speaker 1: what are you learning these days? They're really rich, a
Speaker 1: really really and they wanted to spend money, you know,
Speaker 1: like the pent up demand. Obviously the two years. I
Speaker 1: mean when I look at my reservations, when we're just
Speaker 1: we are you know, bling bling full full is stretching
Speaker 1: into next year. But given the precious preciousness of the
Speaker 1: time I really wanted because we were talking about the dollars.
Speaker 1: So if there's going to be a further turning point,
Speaker 1: I fear the further turning point. So like this, if
Speaker 1: you go this death that I prescribed to the euro
Speaker 1: dollars system from two thousand and eight, it first rolled
Speaker 1: through America, like you know, with Lehman's at all. Two
Speaker 1: years three years later it rolled through Europe. We had
Speaker 1: the European sovereign debt crisis. And back then I was
Speaker 1: sure that the final domino, this this system will end
Speaker 1: when the Chinese domino drops. And so back then twelve
Speaker 1: years ago, I had had a month, I had a
Speaker 1: special sits fund. I raised a hundred million dollars. I'd
Speaker 1: have made a billion dollars if I was right proved.
Speaker 1: It turned out my timing was off, and so I
Speaker 1: burned forty million dollars and I gave sixty walked away
Speaker 1: from it. Yeah, why was it? Why was I off?
Speaker 1: And again to shocking in terms of my mind works.
Speaker 1: I'm not a volue investor. I'm not a momentum investor. Yeah,
Speaker 1: I want to say, can training ensure? What else am I?
Speaker 1: I'm a time investor Chinese system and I didn't know this.
Speaker 1: I've only recently gained this. So I didn't gain this
Speaker 1: from my my customers, but I gain it from you know.
Speaker 1: I engaged with the smallest minds on the planet and
Speaker 1: and the Chinese hottest, the Chinese HOTTORSCOO, which they used
Speaker 1: the same like twelve characters and all that notices, But
Speaker 1: they used twelve characters, different characters, but they don't measure
Speaker 1: the heavily bodies and their movement and over the course
Speaker 1: of one year, but it's over the course of twelve years.
Speaker 1: If only I had known not like thing time moves
Speaker 1: that are different cardins in China. Now you had twelve
Speaker 1: onto when I launched that fund, and that takes you
Speaker 1: into today. This is the best, This is the best.
Speaker 1: I was right. I was right just early. I've ever
Speaker 1: heard that. Actually, you got the twelve years cycle right
Speaker 1: when you were making those videos of Chinese ghost cities,
Speaker 1: the real estate emplosion. Actually was right. You called it.
Speaker 1: You were just off the wrong cycle of the Chinese horse.
Speaker 1: It's the best best I've ever heard. I blame the
Speaker 1: dumb hortschool U, but you right. Listen, Remember I think
Speaker 1: I charged fifty basis points management fee. I couldn't charge it.
Speaker 1: I could not charge a performance fye until you successfully
Speaker 1: redeemed right. I do not know why the world has
Speaker 1: not gone that way, but there you go. So yeah,
Speaker 1: Horoscoo takes you to today. Why is the day relevant
Speaker 1: when when it's so? There's been two profound sovereign failures
Speaker 1: of late Europe sold its energy short like the number
Speaker 1: one role of a sovereign is to secure energy resources.
Speaker 1: Europe has five years left. Right, So dollar versus the Euro,
Speaker 1: I think the dollar breaks the buck, if you will,
Speaker 1: which to say, I think the dollar trades much much
Speaker 1: higher versus the Europe owing to the shame and the
Speaker 1: errors of European politicians a generation ago. Secondly, China, China
Speaker 1: facilitated a credit boom in order to satisfy the political
Speaker 1: desire for GDP growth, because when they have GDP growth,
Speaker 1: their citizens are willing to put up with a heck
Speaker 1: of a lot of civil dis liberty or whatever. Right,
Speaker 1: but when you allow domestic real estate assets to be
Speaker 1: four x g d P, you're gone. I don't I
Speaker 1: do not care how clever your bureaucrats are. They were
Speaker 1: never clever in the first place. Boomarkets make dumb people
Speaker 1: look intelligence. Okay, So I fear China And then you
Speaker 1: know again this lacking the democracy gene, and so they
Speaker 1: could not embrace our technology with the boosters and the vaccines,
Speaker 1: and they had to go like with their own thing,
Speaker 1: which hasn't worked. And so there's zero tallerance campaign on
Speaker 1: top of the Russia confloration, et cetera, et cetera. And
Speaker 1: with this property thing like GDP is going down. So
Speaker 1: in terms of the fourth turning, I fear in the
Speaker 1: next three years that things could really get so weak
Speaker 1: in China and and a flight of capital that you
Speaker 1: might see a mad max reaction from the Chinese. I
Speaker 1: fear they may replicate what the Taiwanese ironically did back
Speaker 1: in seven, which say they might devalue. It would be
Speaker 1: an economic crime, but they might do that, and at
Speaker 1: that point the US would have to intervene and we'd
Speaker 1: have to have a global conference of leaders and decide
Speaker 1: on a new monetary order. Well, he it was fantastic
Speaker 1: to talk to you. We will absolutely have you back
Speaker 1: in three years is the time, or maybe twelve years,
Speaker 1: or maybe twenty four years, but at some point we
Speaker 1: would love to have you back. Um. I hope you
Speaker 1: have a great day surfing in St. Bart's. Thank you
Speaker 1: so much for coming on odd lots, Thanks so much here,
Speaker 1: Thank you. I love talking to you. It was so clear,
Speaker 1: like you know, years ago he like mastered media obviously
Speaker 1: with those YouTube videos of the Chinese ghost cities, and
Speaker 1: you could hear instantly why talking to him, why he
Speaker 1: was so compelling. There's a lot of I feel like
Speaker 1: there's a lot of quotes in that conversation that I'm
Speaker 1: probably gonna use going forward. But yeah, I mean I
Speaker 1: thought a number of really interesting points. I did think
Speaker 1: what he said about the private sector, the sort of
Speaker 1: triumph of the private sector when it comes to sanctions
Speaker 1: in Russia and people making you know, maybe moral decisions.
Speaker 1: Of course, they don't want to be associated with a
Speaker 1: regime that is invading another country. But on the other hand,
Speaker 1: these are also very practical decisions tied to the size
Speaker 1: of the market and the feasibility of actually leaving it.
Speaker 1: There were so many interesting points. I mean, just like
Speaker 1: I thought, it's a point about the endurance of dollar
Speaker 1: and dollar assets was really powerful that ultimately like what
Speaker 1: the US can manufacture in droves and the scale that
Speaker 1: others can't our assets that are tied to freedom and
Speaker 1: a stable legal system and the rule of law basically,
Speaker 1: and that no one else is the capacity to manufacture
Speaker 1: the As you put it, I think the term users
Speaker 1: freedom assets at a scale the U S can and
Speaker 1: how powerful that is is one reason to sort of
Speaker 1: bet on the over of like when people do the
Speaker 1: demise of the dollar so forth. To bet on the
Speaker 1: over is simply that point. Yeah, I mean, I agree
Speaker 1: with that, and the idea of a safe asset shortage
Speaker 1: is something that's come up again and again. But I
Speaker 1: would also say there are probably a few countries out
Speaker 1: there who aren't necessarily as interested in freedom assets and
Speaker 1: may look at alternatives. But again, the question for them
Speaker 1: is whether or not they sacrifice economic growth in order
Speaker 1: to secure You know, I guess security from this idea
Speaker 1: of the dollar being weaponized, But overall I agree with
Speaker 1: that thesis. And I just to say that I wasn't wrong.
Speaker 1: I was early, but I wasn't even early because I
Speaker 1: was at the right calendar I was. I was right
Speaker 1: that it was going to be the year of the tiger,
Speaker 1: it was just two instead. Has got to be one
Speaker 1: of the best lines I've ever heard from an investor.
Speaker 1: I mean, I know it's mostly a joke, but there
Speaker 1: is also a kernel to that, right, because when you
Speaker 1: have a centralized economy like China, there are all these
Speaker 1: different lovers that they're able to pull in order to lengthen, yeah,
Speaker 1: the cycle, and we've seen that over and over and
Speaker 1: over again. You know, people have been calling for a
Speaker 1: massive crash for for years and it never seems to happen,
Speaker 1: or it didn't seem to happen until last year. And
Speaker 1: it's not going away. I mean, nothing I've seen in
Speaker 1: any news reports suggests this is the thing. This thing
Speaker 1: is stabilizing, so we're gonna have to revisit that specifically
Speaker 1: against it. Yeah, for sure. This has been another episode
Speaker 1: of the All Thoughts podcast. I'm Tracy Alloway. You can
Speaker 1: follow me on Twitter at Tracy Alloway and I'm Joe
Speaker 1: Why Isn't All. You can follow me on Twitter at
Speaker 1: the Stall. Follow our guest Hugh Hendry. He's on Twitter
Speaker 1: at Henry Underscore Hugh Big. Thanks to our producers Collin
Speaker 1: Tipton and Magnus hum Rickson. Be sure to follow the
Speaker 1: Bloomberg had a podcast Francesca Levi at Francesca Today and
Speaker 1: check out all of our podcasts Bloomberg under the handle
Speaker 1: at podcasts. Thanks for listening.