Join us for an insightful journey into the world of economics, finance, and policy as we explore the implications of current global events and trends. In this thought-provoking podcast, we delve into the nature of economic inequality, monetary policy, and the role of central banks. Our guest, Hugh Hendry, renowned economist and the Acid Capitalist, challenges prevailing notions about money printing and offers a fresh perspective on where economic challenges and opportunities truly lie. We discuss the potential for a sovereign wealth fund in the US, the impact of China's economic growth, and the intricate dynamics that shape our financial landscape.
Tune in to gain a deeper understanding of the forces shaping our economy and discover bold, innovative ideas for a more equitable and prosperous future.
RECORDED JULY 26, 2023
Join us for an insightful journey into the world of economics, finance, and policy as we explore the implications of current global events and trends. In this thought-provoking podcast, we delve into the nature of economic inequality, monetary policy, and the role of central banks. Our guest, Hugh Hendry, renowned economist and the Acid Capitalist, challenges prevailing notions about money printing and offers a fresh perspective on where economic challenges and opportunities truly lie. We discuss the potential for a sovereign wealth fund in the US, the impact of China's economic growth, and the intricate dynamics that shape our financial landscape.
Tune in to gain a deeper understanding of the forces shaping our economy and discover bold, innovative ideas for a more equitable and prosperous future.
RECORDED JULY 26, 2023
Hey everybody, it's Paul Moravsky, Chief distribution officer for CLE investment securities. Welcome to this episode of the fat pitch podcast. As always, I'm joined by my co host Clint Sorenson of wealth shield. And Clint, you brought us a special guest this week, someone I just get to meet for the first time, so why don't you tell us about it? Yeah, so
Clint Sorenson:I brought the man the myth, the legend, the acid capitalist himself, Hugh Hendry. So a former hedge fund manager, excellent macro, strategist. And now he's in St. Barts, just, you know, living the life and I'm so excited to have you on the call queue. So thank you for your time. And I can't wait to jump into this conversation.
Hugh Hendry:I tell you just I've never met chief distribution officer.
Paul Barausky:I go with principal and just see and now my father's a retired admiral. And he told me the bigger the title the less important the job. So no title on the business card.
Hugh Hendry:Yeah, no, it's just like you distributing the dead bodies and cold storage or whatever.
Paul Barausky:The other kind of storage but tell us your origin story. Every superhero has one
Hugh Hendry:of my origin story habits very, very briefly. Born in a violent project for the first seven years of my life, mother on antidepressants and just way too much neighborhood violence. Father truck driver, and through a combination of the power of one the power of no me and, and serendipity, the a lot of things fell into place. Never was the first kid to go to university. Remarkably, I got a job out of university as an Investment Analyst in Edinburgh. Remarkably, I got a position with a hedge fund in the year 1999. I had no idea what a hedge fund was. Remarkably, with a mutual fund, I navigated the car crash of the crash in technology stocks with NASDAQ, which, you know, the German stock market was really at that point, like a NASDAQ equivalent, it fell 80% all of the all of my professional peer group managing mutual funds, you know, just absolutely made such a bad job and they all lost money. They tried to have my fund delisted because he said I was cheating the you know, I was supposed to lose money. You know, not supposed to do anything, certainly not lose money. Serendipity I gave me a mandate to take on a hedge fund. And then I ran that for 15 years. And so yeah, I was there really. You can't see inception. You know, George George Soros launched a hedge fund, actually with my seed investors in 1969, but really had to hedge funds really took off in the early noughties. And then they took off just because conventional management had proven so lame at protecting wealth during that waterfall. And I was a macro guy and a macro guy is is not a better guy. There's no benchmark you're gonna license to thrill. The rule again is just don't dumb lose money. That was fun. Until it wasn't fun, new after 2008 and, and the regulation, the export regulation, and you're the costs. It just wasn't fine and and then larger institutions wanted to pigeonhole you. And so I'm always full of passion, but it became a little bit joyless. And I closed that fund in 2017. And I had been pivoting to investing in this glorious, wonderful island, which I likened to the world of currency crypto, that's Bitcoin seems the cleaner alternative.
Paul Barausky:Yeah. Safer phrase.
Hugh Hendry:You know, it's a really limited, hosting stock. There's no leverage, there are only three weird banks in France that will use the land as collateral. Each year, the literal collectivity, the government imposes more and more restrictions on new build. And so it's a bit like the having that we I think we're due to see next year in Bitcoin. And then there's always you know, there's what is it that from that old movie about the bank at Christmas time, you know, when a bell chimes, they say, yeah, there's a new Angel entering heaven. And there's always someone becoming rich, and they want to come to St. Barths. So
Paul Barausky:well, it's all about perspective. I was thinking about yesterday, I've got a friend that reads two to three books that We he works out twice a day. It's got no financial worries and he's got people who want to have sex with him all the time. But he constantly complains how much he dislikes prison. hardly call St. Barts President it sounds like you distributional were just trying to get by so so Clint wanted to talk to you about you know, his themes right now since this is the fat pitch and kind of how do you see the world right now chairman Jay Powell and the gang just raised again the day we're recording this don't want to say what they're gonna do. Does any of this interest rate movement? It? Has it got you thinking differently these days than maybe even two months ago?
Hugh Hendry:No. I mean, I would like to know, you guys can verify that I am a conscious objector to the whole charade of the Federal Reserve, you had to tell me that, of course, they had raised rates today. And I'm certainly not pinned to my my computer screen hanging on the words of Jay. I mean, if there's a fat pitch anywhere is like, boys and girls, you're all being sold a charade, you get sold complexity, you get sold myth, because no financial system is a casino and they just have to keep you at the roulette wheel. And so if I have any role in this crazy world is kind of trying to be a truth teller, I guess I'm I'm poacher turned gamekeeper. I can give perspectives from the inside and try and pull people away from complexity. Trying to people away from you know, the biggest casino is the options market. You know, every time you buy a call option, or you buy a put option, you're buying something which is profoundly overvalued, providing the overload so I can Griffis Good. Good luck to the chart. Yeah, he's gonna end up being the richest person on the planet and he's already substantial. People buy things which are profoundly overvalued. And then they buy them deeply out of the money. Why would you do that? The chances of succeeding are preposterously low so that would be a message. Another message I really to keep current with today is, you know, having been involved in financial markets, I would be embarrassed to think it'd be multiple decades but that just no one understands money i I'm kind of known for this notion that there are less than five people in the world that actually comprehend money. And they don't work for the typically don't work for hedge funds, or the Goldman Sachs's and the private equity people, you know, but they're out there. We live in a world of just chaos owing to a profound misunderstanding and a lack of willingness to have the bandwidth to really understand money so as we can discuss that, you know, at the Jays press presser at his conference today, no one asked about money and he doesn't talk about money. You're in the leader is all about oh, you know, on financial idiot TV is all about, oh, we're really looking to hear where he steers his leg. His emphasis which particular words, I mean, it's just guys, girls, what was going on?
Paul Barausky:Top that I mean, I flat out it's financial porn. I mean, we have food porn with cooking shows. We have financial porn and they're glued to him as a leading man. I get it. It gets eyeballs, but you sound like Clint nine know why he likes following you, Clint, you talk about the options game right now in the same day stuff a lot.
Clint Sorenson:That's absurd. zero days to expiration options, which is essentially a guaranteed loser people are buying a man over fist. It's absurd.
Hugh Hendry:Now, there's a social commentary behind that because that was the impulse that was propelling at the horror of the abuse of the crypto market. And the social narrative is that there's so many so many folk being left behind. I call them the disenfranchised, they don't have assets. And every year the gap between what you are and what you need to earn to to own property, etc. Which is why doesn't it and it leaves you behind? And a kind of you can trace it in some respects. You know, back to 2009 and we have to remember who no one really talks about Citi Group anymore. Citigroup was the JP Morgan or do those in an air family will. March 2009 Citigroup was a penny stock was it was gone. Zed was dead and the Fed and the various Treasury authorities were confronted with a stark choice that risk assets had become binary. They could Did intervene and kind of preserve some form of status quo. Or they could sit idly by and stocks were going to reprice to zero, you know, kind of Great Depression 2.0. And they did something about it. I mean, they did something about it. I mean, they essentially use the security and the pledges of every American citizen, and the bailed out asset prices. Now, that means that if you don't own us, the prices that you were bailing out the guys or the girls that do on us at prices, you know, maybe one time you you take the hit, but here we are 15 years or so later, they've done it multiple times, you know, like, what's in it for your kids today. You know, you can't sell them, you know, dollar averaging into the s&p, they need a failure of average, you know, they need to make 10 to use their money they need to make it now. And unfortunately, that ferments profound over speculation, and they get picked off. So
Paul Barausky:that's pretty interesting. You know, we noticed the sea change out in a family office meetings. And it was even worse in the states in America than over in Europe, where a newly minted MBAs out of ivy league schools telling me that if the returns weren't well, north of 20%, I was wasting their time they're singing a different tune right now with a little come up. And the first thing I thought about when you spoke, the second thing was do you compare it all the reaction? You talked about? Oh, 809 bailing out the asset holders with non asset holders? Do you compare kind of all the money the 5 trillion post COVID that America put out that went to essentially business owners and 20% of the people and further widen that gap? Or am I wrong on that?
Hugh Hendry:Well, I mean, again, there's complicated. So specifically, you're referring to the stimulus?
Paul Barausky:I think, yeah, well, stimulus eidl. I'm really talking about PPP. I mean, I got somebody at home, it gets a small check, I got another guy with 12 businesses winds up with$2 million, more than maybe as revenue that year, that seems to me to just further exacerbate. Similarly, what you talked about?
Hugh Hendry:Yeah, I mean, The Good, the Bad, and The Ugly, that I mean, there was a lot of good yeah, I'm, forgive me, but I'm one that kind of blurs lines as too much tribalism and financial conversations, you know, there's good and there's bad deficits, and big government is bad. And the opposite, was more complicated. But the STEMI thing actually demonstrated that if you give poor for money they spend it. Yeah,
Paul Barausky:consumer remains strong.
Hugh Hendry:The proposals nature of of where we are on the precedent is that when you make rich people richer, they don't necessarily spend it. Yeah, because their propensity to consume is much less. But so have as if I was to broaden my perspective. First of all, I would really like to address this disenfranchised nation, because it has profound negative implications for the Political Economy standing as a part, defining American upon Americans not good. And then that applies globally. And you're one suggestion I would have is that America should have a sovereign wealth fund, that takes the place of what is a de facto plunge protection group within the Treasury and the Federal Reserve, we do know that there is a certain threshold whereby if asset prices fall, there will be a rescue. So it's inevitable there will be an intervention at some point in the future. Now, what if actually, at that moment of crisis, when the central bank was actually doing something that you properly conceived all of us to do like to buy proper good assets at a moment of high stress when no one else wishes to buy them? And what if it was buying it on behalf of the citizens of America, and access to that fund was means test it? So you know, if you're a billionaire, I'm like, God, you know, move on, you know, but you know, if you got nothing, you know what, let's talk, you know, let's give you an allocation. And let's use that as an asset that you can pledge in the future either to start a business or to get a mortgage. So let's get going. And then I would take it further again, I said, Well, why do we have this profound income disparity your way the rich getting just profoundly ludicrously rich? No, people stop there. And they say, Well, it's the damn Federal Reserve. And it's the government and all this printing money. I'm categoric in that there isn't been much in the printing money. Again, there's stories of printing money, there's fears of printing money. If there has been monetary creation, I don't really See it as having come from the Federal Reserve? I think this bogeyman this thing called quantitative easing is subterfuge is propaganda. It's something that public servants can it's a big reveal, hey, the American people, we stand by you, we're doing this, we're on your side. What are you doing? Okay, so maybe I have to just demonstrate that it's subterfuge. Because if there's just God forbid, it's just me, I am the private American sector. Yeah. And there's the Fed. And then there's one private bank, okay. And I sell government treasuries or mortgage backed securities, and I sell it to the Fed, the Fed buys it, the Fed is expanding its balance sheet, okay. I received digital money, I receive a digital credit to my bank, okay, my deposits at that bank will be lifted by that some that represents a liability for my bank. And the Federal Reserve recognizes we work on a ledger based system, everything has to balance. And so the balancing equivalent is a movement in Federal Reserve's with my bank, it's credited with a reserve bank then has three assets that has reserves from the Federal Reserve, it can invest in treasuries it can lend to the US government, or it can make loans to the private sector. Okay. So, within the three, the reserve assets have gone up, and the balance sheet is unchanged. Now, there has been no printing of money, zero printing of money, okay. What quantitative easing is, is latent, that presence of that additional asset, the reserve asset, which the bank has received, sitting there, and you know, a few years back, it was earning nothing. I mean, no, it's kind of it's kind of cool is getting what, five, and where are we? I mean, five and a quarter, five and a half. I don't know, like, number five, something. But back when the Fed started, you were getting basis points on that asset. And so the Fed had a presumption I get nothing against this presumption. But the presumption was that the bank, we're going yeah, why don't we draw this asset down? We have more of the other assets, why don't we make loans to the private sector. Now at that point, it becomes money. But following the debacle of 2008, when the American in the global banking system went kaput, and when we impose draconian capital rules, and remuneration limits and the rest of the world, banks just lost the module. You know, I think we're fine. So it categorically doesn't print money, unless there is a change in the risk seeking appetite of the banking community, and they seek to expand loans. And I'm saying too much but a stop to fascinate money printing is is not the source of it is not where you're led to believe it's not the Federal Reserve. Do you want to know where it comes from? Yeah. So it comes from the Communist Party of China, the Communist Party of China was colluding with the year the cool rich cats on Wall Street. I mean, you can't make this stuff up. I mean, there's James Bond. The world fundamentally changed about 25 years ago, the construction of the dialogue between great nations have profoundly changed in terms of the engagement of trading between the United States, Europe, China. And of course, for these purposes, we're really talking about the US and China. And I say 25 years, I mean, maybe it's 25 or 35 years, but you're 35 years ago, China was the size of Turkey today, Turkey is about $1 trillion economy. Today, China is $18 trillion. It is level pegging and soon to overtake Europe, in terms of GDP, the US is more like 25 $26 trillion, and Europe is stagnated. But the fundamental shift is that China, of course, is towards the end of this incredible industrialization, the industrialization that we saw in 19th century America. We have industrialization, the amount of domestic investment projects that offer a bonanza where you can make lots and lots of easy money just they are far greater than actually the domestic source of savings. And and typically the answer as America demonstrates 19 centuries, you would run a trade deficit now, and trade deficits get balanced by the rest of by by the rest of the world sending their surplus savings to you. So you have this, you have this dark tangible investment opportunity. You've got your savings and the rest of your come in and top, your top up the fund and boom, South Korea did something very similar, and South Korea is out arguably the greatest success story for an economy modernizing and attaining you the lifestyle and the wealth that we've come to, to appreciate and needed it. I think for 40 years, we run a trade deficit. The world is turned round, however, but there China decided it watched the Asian tear Tiger crisis. And when I say that, when you're talking about these MBAs, I've got to remind them that I'm not talking about a hedge fund crisis. I'm talking about the demise of the Thai baht, the the economy of Thailand was rip roaring for a good 20 years. And again, they had built a dependency on overseas investors funding domestic expansion, and it got out of hand and the currency collapse. And across the region, a lot of political leaders who'd been kind of robbing their citizens got kicked out by the IMF and other Western appointed bodies. And so China was watching this as going out. Like, the number one rule of the Chinese Communist Party is persistency. Like, you know, we've got it, we're, we're in it forever to run the thing. And so they said, listen, we're going to do industrialization, and we're going to finance it domestically, we're going to be the way we organize our affairs, effectively, we're going to encourage our citizens to have very, very, very high savings ratio. And they've achieved that. And that means that they've run trade surpluses, persistently, you know, for nearly three decades. And more than that the trade surpluses at the peak were almost 20% of GDP. What does that mean? I mean, you know, it needs context, when America. So if you think of after the First World War, or after the Second World War, when the sovereign nations were destroyed by the horrors of conflict, and especially the 1920s, the comparative advantage of America with all the new technologies and all, you know, this burgeoning new economy, and it was, you know, it was king. But this, the trade surplus in manufacturing was 6%, at its peak 6% of GDP. And the Chinese equivalent modern equivalent is more than three times that. So it's the size of order effect is enormous, long story, but what that means is so China went from a trillion to $18 trillion, did everything right, you know, absolutely destroys everyone else in trade markets. And as currency has depreciated. I call their currency currencies referred to as the one the remin be The CNH. I prefer to call it the red cabbage. And then if five years ago, at the time of the NAFTA agreement between Mexico, United States and Canada, China devalued its currency to about six, you needed six essentially 6.3 red cabbage to buy a US dollar. And 35 years later, you need 7.3. Red cabbages to buy $1 You need more more cabbage, you become the citizens become less wealthy visa vie the rest of the world. And, and that subterfuge is maintained by China and other Americans with nations having an insatiable appetite for the risks three Treasury securities of America. So the world today when I say it's changed fundamentally 80% of the world's surplus savings are invested in America. And that makes no sense. It makes no sense. Because all of the savings or forgive me, the the investment opportunities in America are absolutely covered like two or three fold by domestic savings. And yet there's this avalanche of foreign money that comes in that weakens their currencies, it gives them an advantage, a price advantage in in trading commerce. But it makes life really difficult for the good folk, the folk who don't get any rent from any proximity to Wall Street, you know, the people who work in Amazon warehouses. They're just being pulled down. Yeah. And that's the money because clearly there has been money printed. And the money hasn't gone into the real economy. It's gone into financial assets, financial assets, that have never been higher, if you will, as a percentage of GDP. But I would source that money to these overseas sovereigns. So I suggested to you that we we set up a sovereign wealth fund, this emergency rescue fund is going to be the backstop for US financial assets, and I'm going to fund it by actually imposing a withholding tax on the sovereign nations buying US Treasuries.
Paul Barausky:so straightforward enough, straightforward enough,
Hugh Hendry:but you know, ain't gonna happen.
Paul Barausky:Waiting for the retort. What do you think all that?
Clint Sorenson:I mean, I love it. Right. So I followed you for a while. So this is not new to me. But I'm glad he's here in it with our audience, I would like to jump in here in terms of, you know, some of the fat pitch trades that you are positioning unnecessarily trades. But when you start to think about where we are globally, from an economic regime shift or potential economic regime shift, right, what does that look like? Does that look like hey, we have to no matter what, go back to ZIRP. Go back to, you know, that type of those type of policies defending the asset owners? Or is this something where Mr. Powell in the other global central banks are saying, Hey, we're gonna be tighter for longer? Make sure we combat entrenched inflation, what how do you kind of see this unfolding?
Hugh Hendry:Yeah, great question. I have got, I've got repetitive strain injury from thinking about the wars, because it's just, it's just the same thing again, and again. The word that we have today, GDP, income near the income of America has three determinant variables, okay, you understand that then you understand growth, the three components of growth, potential components are population growth, having more babies, or being you know, being welcoming to foreigners. And we're not having as many babies and we seem to be less welcoming to foreign productivity, productivity growth, and productivity is a bit of a mystery. You know, we have we've, you know, AI was invented with, you know, with the iPhone, and we walk around, it was something you could do, you can run Apollo 11 mission with your iPhone, you know,
Paul Barausky:on productivity, Clinton, I have a laugh every week that someone had Goldman decided 1.5 was the multiplier for AI, and Wall Street now runs with it and scales it out. It's the most ludicrous thing I've ever heard. Oh, I
Hugh Hendry:mean, these guys, they're like, like, you know, what more can we get away with this week?
Paul Barausky:I didn't mean to derail you, but it's an ongoing joke with us.
Hugh Hendry:Well, it's to productivity doesn't, has not been contributing to GDP growth, it's not being a positive factor. And that's a bit of a, it's a bit of a mystery. Superficially, you've got to dive deeper. So I said three, I said, you know, that kind of population growth, productivity, the two b's, the third, the fall back is, is debt growth, that a positive delta in debt, the economy taking on more debt, you do that. And you can create the wherewithal to to generate GDP growth, because it's essentially, it's just, it's money coming into your wallet. And there's just not enough money coming in from the other sources of population growth and productivity. So, and I said to you 25 years and over that 25 years is clear that debt as a percentage of GDP has just gone up. And what's also clear is that since 2008, that rate of change in debt has slowed down, and the the rate of change in the economy, we're just not, we're not attaining the speed of growth that we previously became accustomed to. And again, that means there, there are some winners, but really many more losers. So that system hasn't changed. And the thing that filled me with horror, was this fragile equilibrium, where we can continue to nudge ahead, the core economic growth of the continent of America, as long as we're willing tend to take on more debt. If we're not willing to pay more debt, then you get unemployment. So ultimately, the Fed pivots, you know, changes its mind has regret, cuts rates rapidly, or otherwise, you get a lot of unemployment. So it's a fragile equilibrium, but you can keep it you can keep as fast as by having the reserve. You can you can basically have as much debt as you want. If the interest rate is almost nothing. I mean, I was looking at a chart of Canadian house prices, I think residential house prices versus their American equivalent, or lavosh.
Clint Sorenson:It's a hockey stick, and it's outrageous.
Hugh Hendry:It's a new show. And I think they're, they're strong close gathering over residential markets globally. But the outlaw which is Canada, arguably in about 20 or 30 years time unless we break the cycle. That's where US house prices will be, you know, the, I think there's a lot of use. I mean, I'm no expert in whatever I say on Canadian housing will be suspect, but you get like 30 year amortizations. You know, in Europe, you've kind of somewhere around 15 year amortization on the mortgage debt. So that's one means that the financial economy adapts. The thing is, if you don't have debt growing, then the economy shrinks, and it creates political turmoil. So the Fed should know this. But the Fed just has had the most rapid hiking cycle and added 500 basis points to rates. That is a perilous situation, you know, a lot of debt, and you've just massively shock the system with a huge cost of carry, which was unexpected, and I saw
Clint Sorenson:a 44% of the debt is, so it's like, what 15 trillion or something like that, in terms of that needs to be rolled over in the next two years?
Hugh Hendry:Yeah. There'll be lots of smart folk listening to your show. And some of them were like, oh, yeah, that guy, just one of those bears. So what's different and what's kept the whole diggity diggity thing together, is you know, we had that pandemic, we had 10 year rates at like, 40 basis points we had like fed a year to present and everyone reified in America. In your mix. You did it. You nailed it. It's amazing. You know,
Paul Barausky:that's a cash out refi more money? That's right,
Clint Sorenson:let's leave that out.
Hugh Hendry:So no surprise, the economy hasn't collapsed. I mean, mortgage interest rate payments are substantial incomes are half what they were in 2008. So it's like crisis. Where's the crisis? The only point and your two point about that rollover, a risk, which has been, you assume the household sector is able to transfer the risk of rate shock onto capital markets. So you can transfer the risk. But you can't eliminate the risks. I
Clint Sorenson:guarantee you right
Hugh Hendry:now. And so the risk, again, remains in the system was kind of out of view until it gets rolled. Yeah. And what is that risk? That risk is that you had a decade of financial institutions. And what they do is, they land long, and they financed the short end. And for over a decade, both rates were really low in real terms, zero. The problem is the shorthand where you fund everything knows as long as your
Paul Barausky:10 mismatching is a problem.
Hugh Hendry:Well, it was a problem for First Republic by
Paul Barausky:Yeah, yeah. I walked by Silicon Valley Bank signed building last night in Denver. I didn't know if I had been breathing in marijuana air on the lawn Walker, and it was a mirage. But it was that was still on the wall. Yeah.
Hugh Hendry:And so then you get this thing? Oh, well, you know, Silicon Valley Bank were jerax. They were idiots. They're irresponsible. You know? If only it had been a better managed bangers garbage, absolute garbage. the unthinkable happened there. Again, what did we say? We said, a bank has three assets. It has reserve assets with the central bank, it has it can invest in treasuries, and it can invest in the real economy via loans. And with the COVID. The central bank, we were talking about $5 trillion of new QE. And so that $5 trillion, of course became a an inflow in terms of deposits for the banking sector at large and Silicon Valley's deposits where I'm from, I'm going to make this figure up, like from my own $40 billion $280 billion. And in return, they had these central bank reserves. And they went, Hmm, kind of, we don't want to lend to the economy, let's lend to the government. And so they transferred their QE deposits into treasuries, and they put it under this thing called a hole to maturity, which is a bit of a bribe from the Fed. And the Treasury is like, like, you know, buying lots of, of our doll, and you don't have to market to market. And there's always it to my mind is the conceit and the arrogance of a well formed argument. It's just a kind of cool argument by these treasuries. And you don't have to bring it through your income statement that provides stability to your business. I'm in I'm in the conceit is the Federal Reserve tax rates 500 basis points and people like, I get nothing on on deposit, and I get 500 basis points for the feds, you know, see you later. Yeah. And so you then get deposit flight. And the unthinkable is that I shouldn't have to sell those treasuries, and you've got to record a loss, which is greater than your net worth, or your share with the funds and boom, you're gone. So that is common to all the banks, the nature of banking, we're going to need a new model and banking 2.0 Because the the existing model where with the telephone, you can get the money out immediately. The notion of having deposits funding tenure of commercial industrial loans is looking kind of more and more precarious Anyway, anyway, so. So if the economy is still kind of jiggy up raise rates race there, we now get a break, they can no go on holiday, you know, don't they're going to be reading any books about money. You know, we have the Kardashians running the Federal Reserve, you know, we have as communicators, not necessarily as monetary leaders. So you know, and
Clint Sorenson:that goes for the Treasury too. Right? Because that was Yellen. That was Yellen told specialization was communication, correct? Yep, absolutely.
Hugh Hendry:She's the master of communication. There's a funny one, because Germany that the whatever it's called the Chancellor of the German Republic, the ton of the year it was just he was very emphatic that no one session with the Germans we have no grand fashion. We are all German. And as he was speaking the could the economy was in recession. Jeremy really is tanking just now.
Paul Barausky:And just thank the Germans avoided a cold winter. If it had been called with no alternative to cheap energy, my God, but it look even worse. No.
Hugh Hendry:I'm not fat pitching you. I'm just bitching you I'm not fat. Fat fish. We
Paul Barausky:got to end with the fat like Concord's. Yeah, Clint, we got a few minutes left here. So we know what you don't like we know where you think there's mistakes and we actually thrive on that. Speaking of Germans, a little shout in Freud is fine for the masses. If somebody were to pinion that corner, go tell me three things you like that you're thinking about? Not necessarily in love with tomorrow, but what are some thoughts whether they're specific or general that you like? Yeah, so
Hugh Hendry:let's get real. I mean, for all the bitching, the investment part is really easy. The feds made it really easy, right? So let's conceive that we have a we're a private client. We've got a million bucks to play with. Now, what do we do with a million bucks? So most hedge funds kind of they do raise the new Ray Dalio and Bridgewater, the All Weather type thing kind of quadrant like investing. Making sure you're somewhat diversified Die Another Day. Okay, so the first quarter is equities. We're gonna have an exposure to equities, right? I don't know. It's like, is it all borrowed? Sure is going up. I own things going up. Trend, okay. If it starts going down, I'll sell it. Okay. It's up 40% this year. So now, I've got a million bucks 150 Those 150,000 though, okay, I'm going to buy futures, okay, on the Q's. Okay, what do we got next? The next quadrant, treasuries I like treasury. By white I like treasury. Globally, the rest of the world is, is is kind of in a recession. The if you want to see, you know, the Fed looks at core inflation, to try and see the future. You look at core inflation. You see the past, if you want to see the future, you look at producer prices. Producer prices are now I think, almost negative across the region of Europe and China. The last recording for June in America was 0.1 positive so we're going negative. So I think inflation ultimately is coming down. And there's a lot of hype about the inflation thing. I want to enter and I think the Fed I think you know, ultimately something will break and the US will have a will be part of a global depression recession or deflationary recession, I should say. So I went on treasuries, however, I buy stuff going
Clint Sorenson:up then going up, though.
Hugh Hendry:I would say for I would say the US the negative trade, I would say like actually, they've kind of gone flat for about nine months, which is kind of not bad for has been raising rates. Everyone's been obsessing about inflation. The economy has been hard, and they've held their level. And so I'm talking specifically to the TLT that tilts the ETF, which is 17 years of duration plus and the only reason there is like if the Fed eventually cuts rates, those long duration things. Boy, the the move they make you they make you a box of air When I buy call options, I know buy call it at at the money folks know
Unknown:that out of the money,
Hugh Hendry:blocks, and I buy a lot of time using go to January 25. Right? Because I'm a dumbass. I don't know if the recession is 2020 2320 24 I just know it's not 20 Joining me very much. So Eric spent 70,000 bucks on option premium. Yeah, I've got 150,000 in NASDAQ, we know coming to the quadrant of real assets, I would drop 50,000 in gold, I'd have to have a bit of gold, so it'd be 5% fun. Why, for the last 12 years, gold has been titillating with the $2,000 level. And it's been a barrier and in my widened long experience when barriers get taken out, you go to the moon very going to the moon for gold is maybe going to 3000 Gold can't triple gold tripled, it'd be worth more than all United States stock markets. I can think of crazy stuff and that's too crazy. To see gold is 3,005% I buy more if it took out the barrier. But really the road half my money I'd have 200,000 in Bitcoin and simply because Bitcoin is Bitcoin, not crypto. Bitcoins about half a trillion dollar in market worth. It's what is that is 126 the size of gold. And so like Bitcoin could double, triple quadruple, it wouldn't really be a mark on the meter on your screen. And Wall Street's getting behind it mostly can smell that money from charging.
Clint Sorenson:BlackRock jumped in I was thinking Oh, it's over here. The fee guys are again. Yep.
Hugh Hendry:The raging bull there the hair, it's coming. So I'd have that engineer. If it goes to, you know, what is it 29,000 and change if it goes to 20,000? I'm buying more. Because the 10,000 I'm putting in I'm buying that sucker going down, which is something I don't often do. So then so what have I done? Let's recap. We had a million dollars, I bought 150,000 In Nasdaq futures, I spent 70,000 on option call option premium for these. These Treasury long dated I spent 50,000 in gold futures and I spent 200,000 in Bitcoin futures. So if I wasn't buying futures and just buying physical I spent about half a million Yeah, I spent about half my portfolio, but actually, it's all been done in futures. And I've not really had to pony any money up so I've still got my million bucks and I'm sitting getting five and a half percent I probably got some in Munis getting seven you know so actually my call option on the Treasury's free because that's just the it's not free but yeah, I'm using the car yeah you know, I don't need the income but the income combined me this this insurance policy in case the economy goes down the economy Cousteau gonna make money baby. Yeah, so as I say, like, this is the sweet see, you know, the car keys are 100 they trade 110 I'm buying a lot more than NASDAQ footfalls I'm selling like it's I'm sure you'd
Paul Barausky:love it. That's that's not a place to be. Listen, that was Clint wants to take us out here that was too good. I'm going in there I first time in about 12 guests actually made some notes. And as I'm writing him wait a second I'm gonna listen to this. You I'm not bright but I always pick up the bar tab and I'm a lot of fun.
Hugh Hendry:Oh, you must have to say blows.
Paul Barausky:Yeah, no doubt.
Clint Sorenson:Well, whew, I can't I can't thank you enough. Tell tell the crowd how they can how they can find you on Twitter. All the different socials how they can listen to your podcast and follow you because it is a pleasure. I just the conversation was awesome. And I can't wait to have you back on.
Paul Barausky:I can't wait to get parts.
Clint Sorenson:I know we should do it there. We should do it there.
Hugh Hendry:Yeah, well, thank you gentlemen, for your hospitality. As my hat says I am the acid capitalist. I have acid capital this podcast once a week clear of their own. We have that on you all the various audio platforms on YouTube. We put a free 30 minute section on on on the Twitter or the x whatever we call it these days. I'm on the X Hendry. Art. Whew. And I take lots of St. Barts pictures on the gram. But yeah, you guys should come me I'm doing the acid capital this summer retreat. We're gonna drop a tub of acid and see if we can make sense. bedpost. It's going to be you might beautiful house the basil blonde blue.
Paul Barausky:There we go. So I've seen the dad or dad and company or Jerry Garcia band 107 times Jay Powell was at one of the shows. So, you know, and he's saying
Clint Sorenson:to get on his wavelength,
Paul Barausky:yeah, you might you might be tuning in because he was there and a shout out right up front with Bob Weir and John Mayer and the gang.
Hugh Hendry:Well, I'm reappraising as you speak. Maybe Joe is not as crazy as capitalism is. Yet he was a bit like Jim Morrison, what if we don't have a fair Sister, you know, we've ravaged and plundered her with this chaotic and crazy blunderbuss of public policy, economic policy, which makes a tiny cohort very rich, and everyone else very, very poor. I mean, literally, I've got to drop acid just to kind of deal with the absolutely awful consequences of when I look at the world today. So with with the power of conversation with people listening, I was trying to offer solutions, then maybe we're just one tiny step closer to try finding a better resolution for the future.
Paul Barausky:You're doing God's work to end our podcast today. Since you've quoted Jim Morrison one of the quotes that I keep near and dear to me is one of his He who controls the media controls the mind. And by getting out there talking sending the kind of knowledge you're out there. Hopefully you're putting people in a better frame of reference. So I can't thank you enough on behalf of Clinton I for joining us today. I know you're a busy man, and we appreciate having me on the fat pitch. So thanks, everybody for joining us. We'll look forward to listening to this episode and all the ones to follow and all the ones before