Odd Lots - Hugh Hendry On Why The World Still Can't Get Enough Dollar Assets

Episode Date: March 31, 2022

For years 15 years, Hugh Hendry ran the hedge fund Eclectica Asset Management, earning a reputation as a provocative and contrarian thinker on the entire state of the world economy. These days though, he's living in St. Bart's, surfing, and managing luxury properties for the richest people in the world. But of course, he can't stop thinking about macro. On this episode off Odd Lots, Hendry joins Tracy Alloway and Joe Weisenthal to talk about Europe's big energy mistake, China's property troubles, and why even after all this time, the world can't get enough dollar assets.See omnystudio.com/listener for privacy information.

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Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal. And I'm Tracy Allo. One of the questions, and of course that I would say in part due to one of our recent episodes that people are debating is the role, the future of the dollar. Right. And of course, people love to debate this for our entire lives. People are like, oh, this is the dollar doomed?

Just the UN going to replace it. It's going to be replaced by gold or Bitcoin or something. But with the sanctions, with Russia's loss of its FX reserves, I feel like this is a, this debate has gotten new energy. I distinctly remember my dad sending me articles about Iraq switching to euros for oil payments from many, many years ago. So yes, this is an ongoing debate, but you're entirely right. New life has been breathed into it. And, you know, most recently we're recording this on March 24th. And just yesterday we saw Russia saying that it was going to.

start to demand gas payments in rubles. So there is, there are things happening on this front, but even something like that, you see people portray it in two different ways. So on the one hand, there are people out there saying, oh, look, this is the end of the petro dollar. Russia has kicked off this entire process. And then other people are saying, well, no, that's not what it is at all. In fact, this is a sign of, you know, Russian weakness. Basically, they can't get foreign currency at the moment, so they have to do this. So there's so much debate on this particular topic. Yeah, it's like a big, I would say it's also just a big ideas moment. Earlier in the week, we recorded that interview with Victor Schedt,

talking about, you know, the world dividing into two. So it's kind of a moment for big picture sort of reassessments of everything. And the dollar is sort of the key icon of the existing world, the global reserve currency. But all kinds of like, it's a moment to sort of step back and think about sort of things that we take for granted and what could. change. Yeah. And also, I think whenever you get this level of uncertainty, people try to fit their own narratives onto it. And so things that they've been talking about for many, many years, suddenly this is the thing that is going to propel those into existence or into life. But yes, big picture, big moment. So I'm very excited about our guest today. Someone who has always had

very provocative ideas in the world of global macro, all kinds of things, things related to currencies, China, gold, etc. one of the most interesting people in the space for a long time. We're going to be speaking with Hugh Hendry. He was the founder of Ecclectica Asset Management. And now he is a luxury hotelier on the island of St. Bart's. And he seems to be living a life that's much better and more interesting than ours. His website, you know, go check it out.

Hugh, thank you so much for coming on. What have you been up to? Because I first became aware of you, you know, probably over a decade ago, watching videos you made on YouTube about Chinese ghost cities. But what have you been up to? Hey, hey guys. Great to be on. Thank you. I have been, I've been recovering. I've been rehabilitating my weary mind. You know, I had, I had many years of active intellectual combat. The Eccletica macro fund ran for 15 years. Wow. I mean, very tenure that I achieved. It's not the tenure you get as a professor at some of these baloney economic universities where you can or you can proclaim whatever

and never be called for about 15 years. But at the end, in the end was 2017, I was exhausted. I mean, the thing you have to remember is we have this amazing organ inside our head, this brain. But the thing is, it lives in a dark chamber. There ain't no light getting into that brain. And it relies on the idiot on the on the outside to tell it what's going on. And I spent, I swear, I spent 15 years thinking I was going to die. Not every day, not every day. But there are moments in investment campaigns and you think, oh my God. You know, remember, I was, I see things.

And it's a curse because I normally see things before other people. as I've got to deal with other people catching up. And as a consequence, there are days when you're out of sync with the world and your P&L bleeds and you convince your brain. Brain doesn't know. Your brain's like, oh my God, we're like, you know, this is a flight moment and you get flooded with all this toxic chemistry to get you out of the hole. So 15 years of all that nasty chemical reaction, I needed.

I needed five years to, yeah, five years to recuperate. And what a better place I can't think of anywhere than this beautiful island in the middle of nowhere, this tiny little volcanic rock where it's a bit like gold glutches where all the successful people come and they're like peacocks. They're like, look at the size of my super yacht, you know. I'm making hay and I sit, I watch it, I accommodate it, I build beautiful, beautiful villas for rental under the brand Blanc Blue. And then since the body snatching alien invasion, the V in 2020,

and I don't have access to the dear old beloved Bloomberg Terminal, but I tell you, it's in the airwaves or somewhere because I'm drawing down stuff, and I'm glad to say that invigorated, I've begun shading again. And so I have podcasts, I'm on Instagram and my swimsuit. and what am I doing? Yeah, I do podcasts, etc. So I might be telling it like it is. Well, I mean, I got to say it's raining and cold here in New York. So hearing about your very glamorous life in St. Bart's isn't helping this morning, but I'm glad you've recuperated. In terms of what you're seeing right now, I mean, you are still very much paying attention

to what's going on in markets and the world. more broadly, it seems like, just looking at your Twitter feed and your videos and things like that. What are you seeing right now? You know, lots of people are talking about this as a turning point in world history and possibly in the economic order, as Joe and I were discussing in the intro. What do you see? Oh, my goodness, how long do you have? Nice to be waiting. I see confusion. I see people talking about what they would like and kind of failing to understand. And that sounds very pompous. And let me be even more pompous.

Very few people. I mean, I want to say, like with one hand, I start to struggle to use digits once I reach the fifth digit when I nominate the people that actually understand money. Right. And that includes economists. That includes the biggest hedge fund managers, the bankers. it's bluff. It includes the Federal Reserve. So few people understand the concept of money. And so when we get these dreadful political moments that we're seeing with the invasion in Ukraine and of course the greatest tragedy, the loss of life, the change, the dramatic change in lifestyles being dragged 80 years back into the past. It's horrible.

But it creates this energy where people kind of dust off prejudice. And so I'm there on Twitter, as you say, and I'm kind of just trying to bat a straight ball and just like keep it logical and take the narrative kind of closer to, I can't say the truth, but just try and kind of educate people like this thing about money. So dollar, dollar, dollar, dollar, and all that chain. I think we're within the proximity of change. changes is sweeping the kind of description that you gave it there's a pivot in history it ain't

going to come in a linear manner and it ain't going to be forecast by the street okay it's going to come at you from weird angles and it's going to confuse you okay and i want to put it if there is going to be change we have to put it in historical context and there have been three previous changes changes and and as I say I think we're close to a force. The changes and what I'm talking about are really how sovereign nations choose to regulate their external affairs, their commerce with each other. And up until the late 1920s, those, the affairs of major sovereigns were regulated by the transfer of gold. And then gold acted as high. covered money and it allowed for it facilitated the private banking sector to create money or

to take money away. Okay. And no system is perfect. And the flaw of the gold system was exposed. The frailties were exposed. It's lack of kind of flexibility and response function to the near, well, to the bankruptcy of the U.S. banking system in the 1930s meant that it ceased to exist. It wasn't a solution.

You know, it had created a depression, and therefore it was rejected by the many. It was then, and it takes a long time to replace the system. And the system was ultimately replaced about 15 years later with bread and woods, which was essentially a kind of ledger reconciliation of the Second World War. And, of course, it was still a pro. It still had gold in its Lexus, and it used the dollar as a kind of, as the mechanism around gold. And then unheralded and unnoticed by the many,

but around the mid-1960s, the bread and wood system came to pass, and it came to be replaced by the euro-dollar system. You know, in around about 1965, British banks began to allow customers to borrow in dollars. When you get a loan from a bank, a bank is creating money. And for the first time, around about that date, banks outside the regulation and the domain of the Federal Reserve of America began to create US dollars. And then that really exploded when we had the petrol crisis, the petrol currency crisis, because effectively that created a huge amount of deposits which were put on the accounts of these overseas banks.

and deposits are a liability, and those banks needed an asset, which is a loan. And so they really took off in terms of dollar printing, making loans in U.S. dollars. And that system has prevailed, and it reached its apex in the years 2004 to 2006, 2007, but it was mortally wounded with the housing crash in the United States in 2008. I want to say it died. And we've been operating ever since without a proper and certainly a well-understood means of regulating the affairs of sovereigns. And because we've not had a properly functioning means of exchange ever since 2008,

the global economy has been subject and been operating under the confines of a depression, not a great depression. Let's call it a mild depression, but a depression. It's remarkable how we do not see that word in print. Now, what is the depression? My definition of a depression is when the recovery in GDP fails to take out the previous trend line in GDP growth. We have failed in a spectacular manner across the world. I want to say the world is missing $30 trillion worth of value, if you will,

which is why we're creating this animosity. You know, one section of society is fighting the other. The gains are uneven. They're not being distributed as we would hope. The pie is not as big as it should be. And that's because we've not been creating money. And into that, into that theater comes the absurd, comes the wizard of Oz, the Federal Reserve, and its bombacity.

They're like, hey, we're creating money. Hey, over here. Hey, you want dollars? We're creating. $7 trillion, no problem. You know, Bank of Japan, same thing. ECB, same thing. Okay.

They're creating laundromat tokens. They're not creating money, right? The Federal Reserve, it is illegal. It cannot print money. Private sector agents create money through creating loans. US loan growth has been far superior in the 15 years or so since 2008. But far superior means like five, six percent compound growth in Europe is like two, three percent, right? That's the missing mojo.

So, I mean, I think, you know, the point that you make about the missing money, I think is well put. And we've seen those charts of the pre-2008 trend line continuing to shoot up in this sort of extremely anemic. And the U.S., as you say, it was better off than many, but globally, this very anemic recovery. Now we're seeing arguably the opposite. And arguably, some would say, well, having learned the lessons of 2008, 2009, governments didn't just rely on central banks this time, fiscal expansion. And now we have some trend lines that are breaking the old trend lines, at least the pre-2020 trend lines. So talk to us a little bit about this shift, because, okay, maybe the old system, in a way, per your view, died in 2007 or 2008.

Now we see this other shift. What is the now? Help me, help me. Because, you know, it's funny, I, I've always been called a contrarian throughout my career. And yet, I'm a trend follower. I seek the legitimacy of market prices. You know, I buy things going up and I sell things going down. Okay.

So trends are very important to me. So it was rather provocative. What trends are changing? Well, if you just look at something like U.S. GDP or nominal GDP, or nominal spending seem to be on this sort of mediocre growth, but upward to the right, going up to February 2020, basically. And we got a huge plunge, obviously, as the world shut down. And then this V that is now seems to, at least by some measures, gone the other way and not just

return to trend, but shooting above it. You think so? Just some lines I've seen. These are kind of, you know, like, I, you know, I'm a data junkie. Give me more more. Okay. So when I see one year, I want to see it in the context of 20 years. Like, hey, look, we had an alien body invasion, right?

You took the economy went, we suspended global economic activity for the best part of 18 months, right? And then when it switched back on, like on a base of like minus minus minus, the recovery was positive, positive, positive. And then with all the supply disruptions, there's clearly been a degree of overordering just. to kind of get inventories back into situ. It's chaos. It's chaos just now. So I see no sign. I see no sign that the economy is doing anything, anything distinct from the trends that we

observed post-2008, except it's just been amplified by this, you know, remarkable intervention from outer space, if you will. I want to go back to the dollar, but before we did. Just one question based on that. What do you think about central banks, specifically the Federal Reserve, now getting ready to raise interest rates, given your assertion that, you know, the economy isn't necessarily as good as it looks because of all the confusion and disruption that we've experienced? Hey, listen, it's not, it's not my assertion. I'm simply commenting on the observations that I see daily. I'm commenting on the genius of the enormous treasury market. This is an unprecedented situation in terms of where the fixed income markets have priced for the Fed to begin raising rates. The Treasury market is going, guys, don't see it, don't see it, don't see it, don't see it, you know. And you know what?

Our record is like 10, 10 better than yours. Like, you know, you always get it wrong. We always get it right. I mean, you do not need, first of all, the principal function of the Federal Reserve is as a bank record. regulator for those with a license to operate in the United States. It's record in terms of being able to see the future, I'm afraid, is not very good. And so they require enormous bluster. They invest immensely in the almighty posturing of their institution.

It is nothing versus the majesty of thousands, if not, hundreds of thousands of smart, and maybe not so smart people engaging with each other. And it gets more and more interesting as you go out in time where people are kind of thinking about themselves, their businesses, and how to protect themselves, how to prosper. And that brings in the role of hedging. And it's the hedging and it's the thousands of decisions taking which align and create market prices.

And they create interest rate levels. They create expectations of where we will be. And those expectations are distinct and at odds with the federal result. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day.

But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio. All investing is subject to risk Vanguard Marketing

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the dollar. You sort of describe the sort of post-Brettenwood system as having been broken. since 2007 or since 2008, but nothing has clearly replaced it. There's no obvious new regime. As I said in the intro and as a lot, you know, people are like, okay, this is the end. This is the start.

People are going to find some alternative because they don't like seeing that FX reserves can suddenly disappear. What is, is there something new? I mean, what is, is there a threat to the existing order? Is something new going to replace it? Okay, so clarification. Bread and Woods, I said, began to be unwound in a kind of somewhat private, like undisclosed manner by the emergence of the euro dollar market. Ah, yes, sorry. Yes, yes. The end of the year, yes, sorry. The end of the euro dollar regime, as you say, began to break in 2007. But what we can say is we can say that, you know, originally we had a gold system. And then we kind of dialed that back after the mess of the 1930s. that we have increasingly deployed U.S. dollars. So it was U.S. dollars with gold, you know, with the ability to redeeming and receive gold. And then it became essentially a dollar-based collateral.

That is what the Eurodollar system is. It's a dollar-based collateral. So it's a dollar system. So what now? And that is still the prevailing system. The problem, however, is profound conservative. on the part of banks, right? Because they messed up, right? They took too much juice from the fountain in the early 2000s. And they kind of, they went bust. If it wasn't for the extreme

financial intervention, which I welcome by the Federal Reserve, we would have been talking Great Depression, too, as it is, we're talking about a mild depression. So the problem you have is that that facility is still there, but it's encumbered by profound conservatism. And let me take that into this weird tangent. I believe equity markets are not in a bubble, or if I was to caveat, I'd say I want to say like 90% of listed stocks are not in a bubble. And even those which have profoundly high valuations, and there are not many, but the pinnacle of it would be Apple, you know, two and a half trillion dollars. You know, a few weeks ago was

three trillion dollars, which is to say was capitalized greater than the market capitalization of all German stocks. You know, the notion that we have those kind of five-fang stocks, you know, without the Alibaba, greater than the value of Japan. So, you know, stock, single U.S. corporations trading greater than the value of the stock markets of great. So, you know, soft. And even then, I still want to say I struggle to say that that's a bubble. And I want to relate that to the euro dollar market because what it's saying is it is the pinnacle of this conservatism. Like I say, a mild depression, commercial risk is scary.

If you're a banker, it's something that can bite you in the proverbial. It can affect your career. And so there is a crowding in to businesses which are perceived to be devoid of commercial risk. Now, nothing is devoid. But then we have, again, we have this remarkable incident of the virus where we have an unprecedented plunge in economic activity. And so that reveals, again, it's like the tide goes down, you're like, wow, these guys, their profits were intact. Their profits were up. Like, all this happens, these guys just don't have risk.

So what happens is when you can conceive of a business as being riskless, it becomes priceless. There is no upper bound to the valuation of such businesses. And it's the same phenomenon when we had treasuries yielding 40 basis points. And, of course, negative basis points with the European sovereigns. I'm really, really going to hack off your listeners because, again, I'm going to go against all the propaganda they get stuff down on every single day. That is not a cause of the Federal Reserve or Central Banks buying treasuries. There's no need for them to buy. The private sector can't get enough of those damn treasuries.

And why does it need the treasuries? Because it needs the treasuries for the collateral to support and to create money. So that's why there's been a logjam. No, no, no. So Russia reserves. Okay, so reserves, okay. And again, if I haven't annoyed or aggravated your listeners enough, I'm going to say.

I feel like you have a low opinion of our listeners. Yeah, they're going to like it. They'll love this, yeah. Yeah, keep going. 50,000 people on Twitter. And when I say the B words, the screen light up. Now, what is the B word? Don't worry, don't worry.

So let's preface it. The U.S. makes lots. a ton of damn stupid mistakes. It gets careless. It has, you know, hey, like we all have dumb-ass politicians. And they make some, you know, dumb, unwise decisions. And sometimes that's militarily and it's overreach and wrong, okay? But despite all of that, I'm going to say that the US is like an empire,

And it's a benevolent empire. The empires that have duration that persist, they persist owing to a form of benevolence. Now, it's a self-interest. You know, we can keep in all of our Scottish economists and whatever in our invisible hand. It's benevolence, which is on the basis that we will prosper from this. But for us to prosper, we have to invest and encourage. prosperity with our neighbors. So prime example, you know, the Second World War, we have the Marshall Plan and the U.S. funds directs and gets the region back on its beat. Benevolent, sure,

but of course, the U.S. has won that deal like many times over by having this prosperous, peaceful European neighbor that it trades with, right? Done, great, wonderful. Same thing with Japan, you know, we had a problem, we fixed it, we paid it, we, we, We got it sorted. Great trading partner, another prosperous region in the world. And then China finally seeks a moment where it gets an avenue to kind of come out of the cloud of its political theology. And it says, hey, listen, you know, we want to be rich. And, you know, back in 2001, Clinton, Clinton's office says, you know what?

Why not? You know, join our club. Join the WTO. Trade with us. We're taking a bet that a rich China is a better China. A China that wants to trade and get rich with us is a China that enriches America. So I call that benevolence. Like, was the Iraq invasion a mistake?

Yeah. But, you know, when it comes to, when I travel the world, I'm not all the time on this little volcanic wall. But I tell you, the only line outside embassies, when people are seeking visas, the only line is the U.S. embassy. Okay, so the U.S. reigns supreme and the dollar reigns supreme because it radiates freedom.

You know, like, people write songs about living in America. You know, like the Rolling Stones are incredible because it's the sound of L.A. in the 1970s, you know, I mean, they're not writing songs about downtown Moscow. They're not talking about, not writing songs about Baghdad, okay? Right. As wonderful as these places culturally, enormously rich, right? But there's no zing and zang, right? They don't offer, they don't offer freedom assets.

So you can trade, you can kind of prosper. But if you're not willing to create a free structure where you've got law, you've got order, you've got contracts, that things work, right? Where you don't have to seek permission to get married, blah, blah, blah, okay? Where you can't get confiscated, okay? Then you've got a big problem because you can't create the assets that foreign people like. The only countries that have consistently demonstrated this freedom axis are the United States, the United Kingdom, which is kind of small and irrelevant, increasingly so. But in terms of that motivation, in terms of if you wanted to anoint triple A status in terms of political economy, the United States, the United Kingdom, and let's throw in Australia.

You know, people want to buy their sovereign bonds. They got big reservations elsewhere. Sure. So the argument here is that banks are conservative, investors are conservative, they're looking for safe assets at the moment that's mostly dollar-denominated assets, maybe some things for Europe or maybe Japan or something like that. Is there any chance that the definition of a safe asset starts to change in the current geopolitical situation? You know, maybe there are countries out there who decide, well, freedom isn't actually. that important to me and I would rather align myself with someone like a Russia or a China, something like that. Okay. I mean, really? Really? So like the world GDP's $100 trillion approximately, right? Russia was 1.7 rapidly heading to $1 trillion. Okay. China, 15, but, you know, massively overstated. You know, they've, they've reached 15 without the ability to create wealth. You know,

the stock market has gone nowhere for decades, right? Because they don't create wealth, they create GDP, right? Okay, so I, I'm undecided. So I've just, I've said to you 15 plus what's going to be 1. So 16, I can throw in my weight with $16 trillion, or I can choose to trade, you know, with the happy, clappy guys who actually create wealth and have GDP of 84 trillion. Hmm, okay, hmm, what am I going to do?

Really? I mean, you help me. What am I missing? No, I mean, I think we have to ask the question. I mean, I've thought about this recently with the number of companies voluntarily leaving Russia, even though the sanctions don't require it, which is that ultimately, yes, I'm sure there's a moral element. I'm sure there's a PR element in many cases. But also in many cases, I just don't think they're walking away from that much money. Yeah, yeah, absolutely.

Well, they're exactly. They're not walking away from much. And if they don't walk away, they jeopardize a lot. Right. Okay. And where I thought you were going also is I want to say the sanctions that were introduced by the, by the U.S. side and elsewhere, were tired. Like they were like, we're scared. Like, these guys, this guy's crazy. You know, he's got a nuclear bomb and, you know, so we're going to go slow. Remember, the sanctions, you can, maybe you have to fact check this, but I'm pretty sure most of the U.S. sanctions were announced at the start of the month with the notion that they'd be implemented, like, on the 27th. You know, it's like, like, really, it's like, ooh, we're going to, going to go slow this go, you know.

It was the private sector. Private sector picked her up. Went too right, right? Morally, we're outraged. And secondly, to your point, you know, these countries, because they're not free, they're damn irrelevant, right? I'm not going to jeopardize, like, there's just no optionality in staying here, especially with the suicide policies they're pursuing.

I'm not going to jeopardize trading, like, with the free world to carry on in this theater of the absurd. Boom, done. So this is not a Biden victory. This is a private sector victory, saying, like, making choices. There's a point emerged in history, and you were asked to make a choice. History will judge you in the future in terms of those choices that you made. You have the desire to help, to make. The college, the city, you offer the program Dependance and Sentence Mental, Acquare the competences essential for accompanying and to support the people confronted to to the difficulties of mental and of dependence.

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There's something that I wanted to ask you, and it sort of goes back to your experience at Ecclectica and also the way you think about things now. So you're known as a contrarian investor or a contrarian thinker. But at the same time, it feels like you're very attuned to trends in the market to momentum. I think Ecclectica was described as a momentum hedge fund at one point. But how do you sort of square those two things? So thinking differently to what everyone else is thinking about at the moment. Yeah. So I have to point out, Ecclectics was called Many Things.

Some things on a family radio show. So, yeah, people like, hey, well, let me. mate, I'm doing my questionnaire, so you're contrarian, okay, take the box. You follow trends, take the box. Really? These things are inconsistent. Like, you know, and I usually, I have, I always have to remind people that I, I sound like a moron, but in fact, I'm an oxymoron. Okay. It sounds like you've learned that you've used that line before. You think so? I, you know. Keep going. I got a lot of spare time.

So, hey, you know, I read, I learned from the master, you know, the George, George Soros. You know, this is all Soros. Like, you take understanding from the genius of the marketplace. You know, if I'm in a foreign city, I will go and eat in a busy restaurant. And nine times out of ten, that's a wise decision. I won't walk past like an empty restaurant, go, wow, yeah, I really got to eat there, right? You know, so there's a little bit of that. The biggest mistake, right?

You see it with Tesla, right? People put narrative. Let me take on another well-rehearsed term for my lexicon. It is the conceit. It is the arrogance of a well-conceived argument. Your job as a speculator is to stockpile well-conceived ideas. Then your second job is to be an inventory manager and to remember that you have stopped this larger full of wonderful ideas. But, You only get to play with those ideas when you get confirmation from strangers. When people say, yeah, yeah, this thing is going up. Now, we got a trend or the inverse, okay? You know, that's what I. So it's a humbling, believe me, I began with arrogance. I began with conceit. I began with like well formulated arguments.

And I sat with a career going nowhere for the best part of eight years. Super education. But I was missing, I was missing the Jesse Livermore. You know, Jesse Livermore, effectively was the first real head fund manager operating at the turn of the previous century, who actually, like this ability to see around corners. He felt he sensed the San Francisco earthquake in, what, 1908, I want to say. Now, he didn't know it was going to happen, but he was so closely attuned to markets on how they were trading and trends that he had to say. that he had a sense that something was going to give and something gave. That's the world that I'm talking about.

Keeping your thoughts pure to trend. Now, again, that's not easy because just now, if you look at the US 30 year or 10-year treasury bond yield, trends against just now. I mean, I had a simple rule. I would take the market series if Treasury 10 years went above two. They're trading above two. I think they're closer to 240. Looks like they might go to three.

But, you know, they can go all the way from 40 basis points to 300 basis points. Heck, they might even, markets are mendacious, right? They might even push to 320, 325, 340, right? Probably, and I think most likely, will mean revert back to the prevailing trend. So you can get wide ranges. And so markets are humbling. You've always got to be listening. And you've always got to be able to take positions on.

unfortunately take them off. So we just have a few minutes left. You're on this volcanic rock, the gorgeous island in St. Bards. The people you must interact with who stay at your properties, hotels, some of the most successful people of all time in the history of the world, you must interact. What do you learn from them? Like you must like, you know, in addition to running properties and of course, you're amazing, you know, you're surfing life. You must learn a lot from just hearing and talking to the people that come through your properties. What do you, what are you learning these days? They're really rich.

They're really, really rich. And they want to spend money, you know, like the pent up demand, obviously, the two years. I mean, when I look at my reservations,

we're just, we are, you know, bling, bling, fool, full, is stretching into next year.

But given the preciousness of the time, I really wanted, because we were talking about the dollar, so if there's going to be a further tonning point, I fear the further tonning point. So like this,

if you brought this death that I prescribed to the Eurodollar system from 2008, it first rolled through America, like, you know, with Lehman's et al. Two years, three years later, it rolled through Europe. We had, you know, the European sovereign debt crisis. And back then, I was sure that the final domino, this system will end when the Chinese domino drops. And so back then, 12 years ago, I had a man, well, I had a, I had a, I had a, I had a, I had a, special Sitz fund. I raised $100 million. I'd have made a billion dollars if I was right.

It turned out my timing was off. And so I burnt $40 million and I gave $60, but I walked away from it. Why was I off? And again, to shock you in terms of my mind works. I'm not a value investor. I'm not a momentum investor. I want to say it contrarian. Sure, what else am I? I'm a time investor, Chinese system. And I didn't know this. I've only recently gained this. So I didn't gain this from my customers, but I gained it from, you know, I engaged with the smartest minds on the planet. And the Chinese horoscope, the Chinese horrors which they use the same like 12 characters and all that noses. Well, they use 12 characters, different characters. But they don't measure the heavily bodies and their movement and over the course of one year, but it's over the course of 12 years. If only I had known that, like things, time moves at a different. Cadence in China. Now, you add 12 onto when I launched that fund, and that takes you into today. This is the best. This is the best I was right. I was right just early I've ever heard that actually you got the 12-year cycle right when you were making those videos of Chinese Go cities. The real

estate implosion actually was right. You called it. You were just off the wrong cycle of the Chinese horoscope. It's the best. It's the best I've ever heard. I blame the damn horoscope. But, you know, hey, listen, remember, I think I charged 50 basis points management fee. I couldn't charge it. I could not charge a performance fee until you successfully redeemed, right? I do not know why the world has not gone that way, but there you go. So, yeah, horoscope takes you to today. Why is today relevant?

When, when it's, so there's been two profound sovereign failures of late. Europe sold its energy short. Like the number one role of a sovereign is to secure. energy resources. Europe has five years left, right? So dollar versus the euro, I think the dollar breaks the buck, if you will, which to say I think the dollar trades much, much higher versus the euro, owing to the shame and the errors of European politicians a generation ago. Secondly, China, China facilitated a credit boom in order to satisfy the political desire for GDP growth. Because when they have GDP growth, their citizens are willing to put up with a heck of a lot of civil

disliberty or whatever, right? But when you allow domestic real estate assets to be 4x GDP, you're gone. I do not care how clever your bureaucrats are. They were never clever in the first place. Bull markets make dumb people look intelligent. So I fear China. And then, you know, again, this lacking the democracy gene. And so they could not embrace our technology with the boosters and the vaccines, and they had to go, like, with their own thing, which hasn't worked. And so there's zero tolerance campaign on top of the Russia conflagration, et cetera, et cetera. And with this property thing, like, GDP's going down. So in terms of the fourth turning, I fear in the next three years that things could really

get so weak in China and a flight of capital that you might see a much. mad max reaction from the Chinese. I fear they may replicate what the Taiwanese ironically did back in 1997, which to say they might devalue by 20%. It would be an economic crime, but they might do that. And at that point, the US would have to intervene and we'd have to have a global conference of leaders and decide on a new monetary order. Well, Hugh, it was fantastic to talk to you. we will absolutely have you back in three years. Do we have the horoscope, right? Is the time left?

Or maybe 12 years, or maybe 24 years. But at some point, we'd love to have you back. I hope you have a great day surfing in St. Bartz. Thank you so much for coming on, Adlaws. Thanks so much, Hugh. Thank you. I love talking to Hugh. It was so clear, like, you know, years ago,

he, like, mastered media, obviously, with those YouTube videos of the Chinese Ghost Cities. and you could hear instantly why talking to him why he's so compelling. There's a lot of, I feel like there's a lot of quotes in that conversation that I'm probably going to use going forward. But yeah, I mean, I thought a number of really interesting points. I did think what he said about the private sector, the sort of triumph of the private sector when it comes to sanctions in Russia and people making, you know, maybe moral decisions.

Of course, they don't want to be associated with a regime that is invading another country. But on the other hand, these are also very practical decisions tied to the size of the market and the feasibility of actually leaving it. There were so many interesting points. I mean, just like I thought it's a point about the endurance of dollar and dollar assets was really powerful. That ultimately, like what the U.S. can manufacture in droves and the scale that others can't are assets that are tied to freedom and a stable legal system and the rule of law, basically. And that no one else has the capacity to manufacture the, as you put it, I think the term used it was freedom assets at a scale of the U.S. can and how powerful that is, is there one reason to sort of bet on the over of like when people die, the demise of the dollar or so forth,

to bet on the over is simply that point. Yeah, I mean, I agree with that. And the idea of a safe asset shortage is something that's come up again and again. But I would also say there are probably a few countries out there who aren't necessarily as interested in freedom assets and may look at alternatives. But again, the question for them is whether or not they sacrifice economic growth in order to secure, you know, I guess security from this idea of the dollar being weaponized. But overall, I agree with that thesis. And I just have to say that I wasn't wrong. I was early, but I wasn't even really early because I was right. I was right that it was going to be the year

of the tiger. It was just 2022. Instead of 2010 has got to be one of the best lines I've ever heard from an investor. I mean, I know it's mostly a joke, but there is also a kernel to that, right? Because when you have a centralized economy like China, there are all these different levers that they're able to pull in order to lengthen the cycle. And we've seen that over and over and over again. You know, people have been calling for a massive crash for years and it never seems to happen or it didn't seem to happen until last year. And it's not going away. I mean, nothing I've seen in any news report suggests, oh, this thing is stabilizing. So we're going to have to revisit that specifically again soon. Yeah, for sure. This has been another episode of the All Thoughts podcast. I'm Tracy Allo. You

can follow me on Twitter at Tracy Alloway. And I'm Jill Wisenthal. You can follow me on Twitter at the stalwart. Follow our guest, Hugh Hendry. He's on Twitter at Hendry underscore Hugh. Big thanks to our producers, Colin Tipton and Magnus Hemrickson. Be sure to follow the Bloomberg head of podcast, Francesca Levy, at Francesca today. and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening. I'm June Grasso, inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that shape the nation and the world. Listen for complete analysis of the biggest court cases, the latest actions from Congress and regulators, and the legal moves driving the markets.

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