Hugh Hendry: "I Have No Idea Where The Stock Market Is Going To Be"... But "I Am Long Gold And Short The S&P"

Tyler Durden's picture

One of the best presentations at this year's Economist Buttonwood gathering (which is still being live-streamed here), was, as usually happens, Hugh Hendry. The contrarian Scotsman, who describes his style as one where he "positions ourselves outside the accepted belief system", managed to say in 15 minutes what takes most pundits hours, and that's without the appendices, charts, long-winded essays, and graphs. Because when it comes to conveying ideas, simplicity always wins, and few are as good at speaking in simple, logical terms, as Hugh Hendry.

Some of the higlights from the one-time self-professed goldbug's speech:

  • "10-12 years ago I became a gold bug and launched my hedge fund in the end of 2002, and in 2003 we made 50%. By and large that was from gold beginning to gain some momentum."
  • "When Citigroup and other banks started to endorse very high prices on gold, you needed the intervention of paradox"

In 2006 Hendry flipped, got out of gold on the expectation that something “profoundly bad” would have to happen for gold to rise to $3000, and as Lehman was collapsing he made another 50% in October 2008 by going long the long bond on expectations of outright monetization of the long-end of the curve by the Fed. And that is the kind of fat tail return that suffering a consistent slow-bleed theta for years makes it all worthwhile in the end (also see: Kyle Bass, despite the dins and the jeers of the journalism major crowd).

Other observations include the monetary impact of global mercantilism, where every country is desperately trying to crush its currency, which to Hendry means the possibility of a massive FX short squeeze is increasing.

Hendry says that $3 trillion in Fed monetization has not unleashed inflation. Yet. What would? It would be “another trillion number” which would come when the central bankers no longer fear that their legacy would be of those ushering in Weimar 2, which means an opportunity cost of even greater catastrophe. "Society is saying we need the most profound Lehman times X in order to allow the central banks to cross my Rubicon, to be revolutionary, and they can be only revolutionary when they have given up hope.” In other words things have to get so bad, deflation has to be such a threat, that everyone goes thermonuclear on their CTRL-P buttons.

He summarizes the macroeconomic situation which he sees as juxtaposing the “green shoots” in America, is offset by the “theater of the absurd” in Europe, but as usual focuses on his favorite macroeconomic topic: China: “Like Germany, they have been an operationally leveraged economy, but unlike Germany, have now adopted financial leverage- the sovereign financing of these unproductive investments, so now they have double jeopardy, and if we don’t have a sustained economic recovery I am very fearful of the events that may befall the Chinese.”

Next, Hendry touches on the politically sensitive topic of China selling US Treasurys, which he thinks is ludicrous, explaining that "US Treasuries are not an asset you can’t sell it to protect yourself", because selling TSYs would lead to a surge in the renminbi, which in turn would crush Chinese exporting companies.

The bottom line for China, "whose medicine is its poison" is that it has little recourse: it can’t protect itself in a downside case with its $3 trillion in reserves, or by selling Treasurys, and on the other the impact of financial leverage would magnify any economic crash: “UK GDP peak to trough dropped 8%. In the US in 1931 it dropped 23%. That’s the leverage. Now am I sitting here with video cameras saying the Chinese economy is going to contract 23%? Of course not. But if we have coffee later, I may say something different.”

Then from the Q&A we learn the following:

Hendry is long gold and short the S&P. "It was a great trade until 2008." It has been “profitably but less predictable” since the intervention of QE in 2009. “there is an observation that QE has fortified the S&P versus the performance of gold.”

For the edification of those caught in the endless debate of gold vs gold miners, he says: "I am long gold and I am short gold mining equities. There is no rationale for owning gold mining equities. It is as close as you get to insanity. The risk premium goes up when the gold price goes up. Societies are more envious of your gold at $3000 than at $300. And there is no valuation argument that protects you against the risk of confiscation. And if you are bullish gold why don’t you buy gold ETFs, gold futures or gold bullion.”

And his brilliant conclusion: "I have resigned from the professional undertaking of coin flipping. I am not here to tell you where gold’s going to be. I have no idea. That’s my existentialism. I am a student of uncertainty, I have no idea where the stock market is going to be. So when I am creating trades in my portfolio for my clients, I am agnostic. I just want to enhance the probability that I make money come what may."

It would be so great if the empty, hollow, talking heads (especially those who have been wrong by so much more than 50% in the recent past) on the business stations admitted the same. However without them, the CNBCs of the world would immediately go bankrupt. And where would all those companies advertise during daylight hours and needing a somewhat wealthy audience turn to then?

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Dixie Rect's picture

gold, silver and FAZ, bitchez

Blasé Faire's picture

The thieves in France are starting to catch on.  They've begun snatching gold necklaces in record numberrs in "muggings aimed at cashing in on the rising price of the precious metal."

In July over 635 gold muggings were reported in the Paris area alone.  Buy physical and keep it in a vault.

Pladizow's picture

I aws going to take off my shorts, but I may scare someone with my naked long!

Oracle of Kypseli's picture

I am wondering what ratio of short S&P to long Gold Hugh is using!

Hugh, please give us a hint.

hamstercheese's picture

He robbed a bank in Vienna in 1993 and was handed British pounds??

slackrabbit's picture


Classic ecnomics...the person closest to the problem knows the solution.....likewise the black market.

Dr Benway's picture

On the note of classic economics, have you noticed how fewer people seem to wear gold jewellery these days? I mean, walking on the street you just seem to see less gold. Maybe its changing fashion but surely price plays a role

Zero Govt's picture

it's more trendy to be seen walking down the High Street with a Cost-Co sale bag today than a Versace (or Louis Vitton handbag)

I think the same goes for jewellry, Gold and bling-bling replaced with studs and chains. And with times as they are quite simply you also don't want to attract muggers

RmcAZ's picture

Short FAZ, you mean? FAZ going to zero regardless of what financial stocks do.

CPL's picture

Leveraged decay is a cruel mistress.


The Fed and all the rest of the jack asses are learning that now.  Retail traders are well aware of the nonsense.

fourchan's picture

made aware the hard way.

Spitzer's picture

this is a crock from Hugh.

the average person doesnt give a flying fuck what the price of gold is. Is he not going to hold oil companies beacuse oil has been going up ? They even had the oil execs in front of congress  and the stocks did fine.

Miners went up like crazy in the great depression and in the inflation in the eighties.

this time is diffrent Hugh ?

jballz's picture


FAZ? Fuck FAZ.  When are you people going to learn you are paying a slow bleed of a ridiculous trading vehicle? 

Just short the fuckin sp. It isn't that complicated.

CPL's picture



It's already leveraged to the tits, putting a X3 multipler on that makes it impossible to play with safely.

Silver Bug's picture

More words of wisdom from Hugh Hendry! Gold is the place to be.

Spitzer's picture


The US dollar has been falling for ten years yet its exports fell too.

the euro went to one fifty from eighty cents in ten years and german exports rose.

he doesnt know what hes talking about

Badabing's picture


FL_Conservative's picture

I'm glad to know that Hugh Hendry is in the same boat as me.

JPM Hater001's picture

Give him a hug for me will ya.

_ConanTheLibertarian_'s picture

Now hope there isn't going to be a boating accident

FL_Conservative's picture

It was hard to watch my investment go further red because of my commitment to my investment thesis, as well as continuing to average "down" as QEx comes out and stocks take the little blue pill.  But I'll be the one smiling if we get anywhere near the March 2009 lows.  That will be a lot more cash to buy gold with.

TruthInSunshine's picture

As Michael Burry and many others have proven, timing is important, but doesn't have to be perfect, so long as one's model implements reasonable staying power (Taleb is a master at this, profiting rarely but massively at the occurrence of outsized events).

The Bernanke "put" will inevitably turn out to be the mirage it's always factually been, just as each and every central bank "put" preceding it has been, whether purporting to backstop equities or the housing market, but most won't realize it until the damage is done.


Spitzer's picture

why do you think he has a sound model ?

he invests with his dick. 

shorting miners ?

how well did that work in the great depression ? Google Homestake mining , check out the charts 

mkkby's picture

You make some good points, but I agree with Hugh.  Miners help the banks lease/short their own product, which means they are stupid.  And oil is their biggest expense, which is why they never seem to make much profit.

I don't even like far OOM spy puts, because Eurpope/Jap/UK will die first and slowly - pushing lots of scared money into US paper anything.   All roads lead to printing - so we know physical gold is the best put.  Even if you make money in paper products, you've got the Corzine effect to worry about.


Cognitive Dissonance's picture

"I have resigned from the professional undertaking of coin flipping. I am not here to tell you where gold’s going to be. I have no idea. That’s my existentialism. I am a student of uncertainty, I have no idea where the stock market is going to be. So when I am creating trades in my portfolio for my clients, I am agnostic. I just want to enhance the probability that I make money come what may."

Or as the case may be...........preserve the "value" of what money I've already made.

fuu's picture

Total man crush.

vix is for kids's picture

If some random guest on CNBC said exactly what Hendry said

I don't know where the stock market will be

where gold will be

own paper over physical gold

sell miners

I'm an existentialist

.......we here would ridicule him as just another shill playing with OPM.  No man crush here.

fuu's picture

No we would celebrate the breath of fresh air displacing the miasma of the usual CNBullShit.

valkir's picture

Day after day i am more confident,than even gold wont save me and my family.I wonder why i still kick my but and go to work every day.

Sigep0612's picture

Just develop a plan.   It doesn't have to elaborate.  Me?....My plan is Costa Rica.  I've investigated all the pieces of my plan.  28 hour drive from Chicago.  Heading to Arenal.  Places to live. Food sources.  Fresh water. It's simply a plan in case the US begins to fall apart.   In Oct 1929 as the stock market began to crash,  many were saying "it will come back..."   Do you want to be caught in that boat?

The hard part is knowing when to pack the car and leave.  If there is a major event, (stock market crash, run on banks, civil unrest, major gas or electric shortage) start your engine.  Implement your plan.  If you're can always come back.  But if you're'll be safe.  One major caveat, you need to stay at your end point for a minimum of 3 weeks.  It's simply a plan.  You can sit there an think ...this guys is nuts cause things couldn't possilby go that wrong in the good old USA.  Or you can document your plan,have you're family buy into it or you can starve, be killed by the rioters or robbed of all your possesions.      

Think of this.  I recently asked a Super Market Manager how long the food would last on their shelves if no trucks delivered goods to the store.  His reply "3 days max."  What happens then..?  You tell me what it looks like.   

Zero Govt's picture

Sig  -  great you've thought about Plan B and magnificent you've walked it through all the way to car journey to Costa Rica. Regards knowing when it's time to leave, you'll just know

One fear to put to bed is regards rioters, people do not attack others for no good reason. Joe Public has no fear from protestors/rioters, though the MSM will over-blow every incidental event of such to drive a wedge of fear to make revolutionaries 'the enemy' when it's the Govt and MSM that are the real subversives of society. 

americanspirit's picture

Hi Sig - the reason I don't like Costa Rica or anyplace else when the US begins to come apart is that when that happens those jurisdictions will feel absolutely 100% safe in simply taking foreigners assets and dumping their bodies in the ocean or anyplace convenient. In fact I am totally sure that this is completely pre-planned. Once they know they can get away with it, it will happen. For that reason alone I choose to stay in the US, but in a place where I am surrounded by like-minded armed and ready people. No place is perfect, but most places outside the US will be much less perfect than the right place inside the US when this government and economy collapse. IMHO

Just Ice's picture

Yeppers, foreigners always make great scapegoats.

Zero Govt's picture

AmericanSpirit - do you know of any examples of fleeing emigreys being taken advantage of?

i'm sure there's a few out of 1,000's picked off but humans the world over are very civil. You wouldn't take advantage of someone leaving a tyranical State, you'd help out, most people would  

bunnyswanson's picture

It's a valid concern.  History tells us what group hate and a mob mentality can result in. Replace "Jewish" with "American" please.


What happened to Jewish property during the Holocaust? I know it was confiscated, but was it re-distributed to non-Jewish German civilians or kept for the Nazi Party.

Best Answer - Chosen by Voters

It was confiscated by the Nazis to pay for the war. For example, if they had gold in their teeth, before they were sentenced to work in the camps or die, they would pull out the gold from their teeth. Also, precious gems were taken and given in payment for weapons and the like. It was kept mainly by the Nazis and used as payment but never given back to Jews until after the war if they were lucky. Also, sometimes the gems would be kept by the soldiers who took them for personal use.

October 1938

The Polish government revokes passports of all Jews who have lived outside of Poland for more than five years, rendering them stateless.

Civiltá Cattolica, the foremost Jesuit journal, which is published in Rome and controlled by the Vatican, calls Judaism sinister and accuses Jews of trying to control the world through money and secularism. The journal says that the devil is the Jews’ master; Judaism is evil and “a standing menace to the world.”

October 1-10

The German Wehrmacht occupies the Czech Sudetenland under stipulations of the Munich Pact.

October 5

Following a request by Heinrich Rothmund, head of the Swiss federal police, the German government recalls all Jewish passports and marks them with a large, colored “J.” This is to prevent German Jews from passing as Christians and smuggling themselves into Switzerland.

October 8

The Slovak Peoples’ Party establishes Hlinkova Garda (Hlinka Guard), an antisemitic militia that will collaborate with the Germans.

123dobryden's picture

jews could have avoid the holocaust if only they had paid more attention to their mouth hygiene and to store their gold in there...

Zero Govt's picture

Bunny  -  the issue was Americans fleeing the US ...the Jews were mobbed and bullied in their own country, Germany... any Jews escaping the Nazis generally got good treament in the foreign countries they reached

his point which I questioned was fleeing Yanks would get robbed and thrown in the sea in a place like Costa Rica ...people aren't like that the world over, we're overwhelmingly helpful in such situations

mkkby's picture

Zero G:  how many times have you heard people say they pretended to be Canadian because foreigners didn't like Americans? A lot. We all have.  Now imagine that when they're hungry and they heard those "assholes" got rich off their backs.

Just Ice's picture

That's either a typo or you might want to recheck the "28 hour drive" part...

kekekekekekeke's picture

ha ha ha right?  I took a bus from Honduras to Costa Rica once.  Three fucking days

dvfco's picture

I love the fact that you plan, but Costa Rica isn't 28 hours by car from Chicago.  The rape and murder of your first family members and probably all of you will by 28 hours from Chicago (at most.)  Where would you plan to cross the border into Mexico,  Nuevo Loredo?  You can have dinner with some members of the Zetas who kill about 40 people per day along border towns.  Then, the ride through Monterrey and onward should be really nice.  Mexico, these days, has 1/2 the cities in the top 50 of those with the highest murder rate in the world.  (I know, you live in Chicago, so you're used to murders and really sleazy government - Rahm, Obama, etc. - so you might fit in well in Mexico.)

However, assuming you can get through Mexico unharmed, which I would think you'd have about a 5% chance of doing, you eventually have to choose whether you go through Honduras (highest murder rate in the western hemisphere) or El Salvador (nice guys nicknamed MS-13 will help you if you need anything), etc. 


You literally have picked what might be the most dangerous drive in history - like the Canonball Run from hell.   Maybe try to leave a day early and fly?  Good luck either way.

Hohum's picture

What?  I want CERTAINTY, Hugh Hendry!

TideFighter's picture

Off target here but...I have a buddy on Cuba reporting 141 mph winds near GITMO. "Sandy" is going to be a bruiser, and looks likely to hit NE Coast. Prepare early.

kliguy38's picture

Go ahead and throw your stones at Hendry but he knows the lever pullers......keep your fochin paper can eat paper I guess

fonzannoon's picture

"And there is no valuation argument that protects you against the risk of confiscation. And if you are bullish gold why don’t you buy gold ETFs, gold futures or gold bullion.”

That's kind of garbage.

JustObserving's picture

Exactly. You can lose your money in a gold ETF in many ways. Here are the details:

"If you buy shares in a gold ETF like the GLD, for example, which is the largest gold ETF in the world, do you actually owngold? The answer is no," says Lauren Lyster of "Capital Account" (starting at minute 2:50). 

"You're effectively buying shares in a fund indexed to the goldmarket. This is not the same thing as buying physical goldbullion and storing it in allocated vaults. This is a key distinction. In fact, according to the ETF's own prospectus, the average investor can only redeem their gold shares for cash. Only those who have very large holdings in a fund like GLD have the option to redeem their shares for physical gold. This requires somewhere in the neighborhood of 100,000 shares, which translates into millions of dollars, and even then it's a difficult process. 

"Also, in the case of GLD, let's take a look at the prospectus, because the trust does not insure its gold, which means it may not have adequate sources of recovery if its gold is lost, damaged, or stolen or destroyed. And this may surprise you when reading the prospectus, as we have: The amount ofgold represented by the shares will continue to be reduced during the life of the trust due to the sales of gold necessary to pay the trust expenses irrespective of whether the trading price of the shares rises or falls in response to changes in the price of gold.  

"Wait a minute: The so-called pot of gold shrinks? What kind of deal is that? And finally, one more look at the prospectus because 'gold held in the trust's unallocated gold account and any authorized participant's unallocated gold account will not be segregated from the custodian's assets. If the custodian becomes insolvent, its assets may not be adequate to satisfy a claim by the trust or any authorized participant.'

"Now that may sound confusing, but in basic English, sounds like if the custodian -- in this case HSBC -- runs into trouble, it may not be able to make good on your claim. "

ZeroAvatar's picture

"Wait a minute: The so-called pot of gold shrinks?


And there you have it:  the pot of gold SHRINKS!  And Mary had a little LAMB!