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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Thu, 10/25/2012 - 16:25 | 2919579 RockyRacoon
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That means that they count "your gold" as "their asset".   What could possibly go wrong?  Ask Corzine.

Thu, 10/25/2012 - 16:54 | 2919731 forwardho
forwardho's picture

Or... whats mine is mine, and whats yours is mine. Heads I win, tails you looze. (Un-intended coin metaphore)

Thu, 10/25/2012 - 15:23 | 2919382 JPM Hater001
JPM Hater001's picture

Yes, because Nationalization has never happened and all the mines are here in America where we would never do something like confiscate personal property.

What fairyland do you live in?

Thu, 10/25/2012 - 15:53 | 2919463 slackrabbit
slackrabbit's picture

You can have physical and when / if the government pronounces the law / confiscation - the cops have ALREADY kicked in your door like Germany did in the late 1930's. When the law was being announced on radio, the cops and the army were already kicking in your door!

If you have gold or gold etf or gold shares - the same applies.

We can’t beat an army in either case.

All we can do - is watch closely - warn our friends - sell if the gold shares’ /etfs IF the prices ARE high / MAYBE sell SOME physical (probably in another currency) for cash - AND RUN LIKE SHIT!

We all know we can't fight an army, but what we can do is hope for the best, prepare for the worst....

Thu, 10/25/2012 - 16:20 | 2919512 slackrabbit
slackrabbit's picture




In case ZH readers are reading what I said the wrong way let me be clear.

1. I don’t not TRUST  gold / silver ETFs

2. I do like PM in my hand and i have some

3. But I also like mining shares

4. I know that if the s**t goes south and the TPTB want to confiscate...IT WILL NOT make it to the news UNTIL AFTER its over:

 (watch Hitler:The Rise of Evil. While people were listening to the public announcement / recording, the armed forces had already (or were) kicking in doors of 'terrorists and enemies of the state and people'). By the time the recording was played on public radio it was already done!

In which case its Fema camp 101 for you anyway

5. Have grab bag ready.....and NO I AM NOT JOKEING!


Thu, 10/25/2012 - 16:31 | 2919595 RockyRacoon
RockyRacoon's picture

Keep your personal stash (what's left after that tragic boating accident) in 2 separate locations, and in 2 separate amounts.  If forced at gunpoint/knife-to-throat to cough up your holdings you can reluctantly lead them to the smaller hidden cache and plead for your life that that's all you have left.   PLEEEEZE don't take my family's only means of survival kind sir!  We'll starve in the streets!   ... then chuckle as they drive away ... if they don't outright kill you for sport.

Thu, 10/25/2012 - 16:38 | 2919638 slackrabbit
slackrabbit's picture


Never thought of that. 


Fri, 10/26/2012 - 04:06 | 2920842 mkkby
mkkby's picture

Anybody know a source of gold plated tungsten coins that can be surrendered to theives, or gov confiscators?  Here, officer - take my gold and see what a good citizen I am.

Thu, 10/25/2012 - 16:36 | 2919624 Chupacabra-322
Chupacabra-322's picture

@ slackwabbit,

Confiscation?  That's why I'm long on Guns and lead. 

Thu, 10/25/2012 - 16:40 | 2919650 slackrabbit
slackrabbit's picture

Me too.

(my family thinks I'm crazy. I am )


Thu, 10/25/2012 - 17:51 | 2919949 hawk nation
hawk nation's picture

I have the same reaction frommy family

Normality will not allow them to look objectively at what is going on

I mistakenly told a family member that when the shit hits the fan they should stay away from a few of their family members that are in politics if they want tostay alive

Thu, 10/25/2012 - 19:13 | 2920124 tsx500
tsx500's picture

one glaring difference that instantly comes to mind...we've got 'instant news'  i.e.  social media: twitter , FB       .      all they had back then was radio.   would it make a big difference ?    who am i to say ......

Thu, 10/25/2012 - 16:13 | 2919535 HungryPorkChop
HungryPorkChop's picture

In the 1970's when gold shot up to over $800 some of the miners went exponential.  Sure gold went up 300%, 400% in a couple years but some of the mining stocks went up 1,000% to 3,000%. 

Gold is a great place to be but the correctly picked mining stocks could be a lot more profitable.  Just sayin'.

Thu, 10/25/2012 - 16:35 | 2919608 slackrabbit
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Agree, and Jim Sinclair made a ship load.

But Hugh Hendry is speaking sardonically.  

What he is saying, is that 'if ANY government are  going to steal your gold / gold shares - then there's not much you can do about it'

What he means is (and he has said this before) - you won't find out till AFTER its happened! 

You will wake up one morning, turn on the Tv / radio and

‘oh by the way, your PM  / money are now ours because its a crises and we have to save the little guy and his family ...blah blah blah'.

Do you think the parasites are going to give shit about you?

We have to jump ship before THAT announcement and transfer it / convert it  AND THEN RUN LIKE HELL!




Thu, 10/25/2012 - 17:08 | 2919803 Zero Govt
Zero Govt's picture


You have to prepare, be 1 step ahead, even better try to be invisible to Big Govt, not hard really.

Another point is Big Govts weaknesses are massive. If it hits the 'confiscate' button it's a big dinosaur chasing 1,000's of people. If Thug raids your home it's a 1-hit wonder. Govt hasn't the time to spend investigating you endlessly, like the police they need instant results or they have to move on

make sure your house is clean and clear ...make em leave empty handed, very doubtful they'll come back as Govt Thug has 1,000's of others on the hit-list and only 6 hours in the day to do it

Thu, 10/25/2012 - 15:08 | 2919343 LawsofPhysics
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I hope he is long physical gold because there are plenty of paper promises on delivering all kinds of things that won't be met.  Including gold.

Thu, 10/25/2012 - 15:15 | 2919357 i love cholas
i love cholas's picture

This is my #2 man crush just behind Jim Grant.

Thu, 10/25/2012 - 17:35 | 2919906 I think I need ...
I think I need to buy a gun's picture

mine are kyle bass and peter schiff

Thu, 10/25/2012 - 18:56 | 2920092 i love cholas
i love cholas's picture

I admire Schiff, but I don't think I could get a word in edge wise

Thu, 10/25/2012 - 19:16 | 2920133 tsx500
tsx500's picture

mine are  Kyle Bass , and that guy that just free-fell from 128k feet .

Thu, 10/25/2012 - 15:15 | 2919360 Essential Nexus
Essential Nexus's picture

So he's concerned about Gold mining confiscation, but not about ETF rehypothecation of gold? Go figure.

Thu, 10/25/2012 - 15:16 | 2919361 Zola
Zola's picture

As opposed to paper ETFs , i'd rather have miners thank you Hugh. When it comes to physical gold, that can be discussed, but with a negative carry on the physical , if the miners pay 3/4%+ dividends, they should be better long term.

Thu, 10/25/2012 - 15:48 | 2919449 ruffian
ruffian's picture

No sarcasm has that worked out for you? Miners have not worked out well for me........

Thu, 10/25/2012 - 15:17 | 2919365 Quinvarius
Quinvarius's picture

Commence emergency S&P ramp in 3...2...1...

Thu, 10/25/2012 - 15:33 | 2919371 Supernova Born
Supernova Born's picture

Existential, agnostic, students of uncertainty harken Hugh's non-flippage of coin.

Thu, 10/25/2012 - 15:18 | 2919372 A_S
A_S's picture

owning gold equities is as close to insanity as possible


hugh hendry

Thu, 10/25/2012 - 15:22 | 2919380 fonzannoon
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I own gold equities. I own them because I think there is still a period ahead where gold will increase and the equities will be one of the only sectors to have incredible earnings growth. The key is knowing when to ditch them before gold explodes and they are all nationalized. I have no idea when that is, but I think there is still time.

Thu, 10/25/2012 - 15:41 | 2919423 Al Huxley
Al Huxley's picture

I agree, even though they're dangerous and unpredictable, and fundamentally, the large caps don't seem to be very well run - you'd think they could figure out a way to make a lot more money in the context of the current global environment, but they must be either in on the whole scam, or they're so narrowly focused on mining and engineering that they lose sight of the bigger picture.  That said, the juniors are prone to bouts of insane, manic upside moves, and it seems prudent (in fact it would seem consistent with Hendry's professed strategy) to have some upside exposure to those kind of 'semi-predictable positive black swan events'.

Thu, 10/25/2012 - 17:12 | 2919811 Oldrepublic
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Ron Paul’s portfolio: Lots of gold, silver and Canadian junior miners
Thu, 10/25/2012 - 15:24 | 2919386 Peter Pan
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The threat of confiscation is gold's best valuation basis. After all, why would they confscate something which is not of value?

Thu, 10/25/2012 - 15:54 | 2919470 bernorange
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Because they are hungry.

Thu, 10/25/2012 - 15:37 | 2919411 vix is for kids
vix is for kids's picture

I'm a bit disappointed in Hendry's remarks. "I made a pile in the past, expect to make more in the future, but I can't tell you how".  Even his "own gold" message is full of caveats, ie. "I don't know where it is going, or when," and "physical may be confiscated, so own paper". WTF?

Thu, 10/25/2012 - 15:42 | 2919430 Al Huxley
Al Huxley's picture

I find it really refreshing to find somebody who'll actually admit he can't really predict with a great deal of certainty what the future holds, and is willing to tell you he's just taking his best shot at guessing, and will change strategies if it turns out he's wrong.  No wonder he makes money.

Thu, 10/25/2012 - 15:55 | 2919474 paint it red ca...
paint it red call it hell's picture

Hendry is talking his book. He certainly may well be short miners today as he says in front of that camera.

But afterwards over coffee would he say something different as he indicated he could say something different about a Chinese contraction?

Smart guy that knows full well how the game is played......

Thu, 10/25/2012 - 16:07 | 2919515 Supernova Born
Supernova Born's picture

Hugh is certainly disappointing in his lack of willingness to say much.

Did his exchange with Liam Halligan on CNBC really change him so profoundly?

Thu, 10/25/2012 - 17:54 | 2919952 sherryw
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I read he thinks the Chinese will indeed suffer a major contraction.

Thu, 10/25/2012 - 15:43 | 2919434 dolph9
dolph9's picture

I ask myself every day if I should own mining stocks.  It's cost me alot.

But I think I'm slowly coming around to the idea of owning them until there's a mania, and then dumping and running off with the physical metal alone.

I want everybody and their grandma and their dog to be talking about mining shares.  I want to see those muppets get excited, and then I can sell to them.

Thu, 10/25/2012 - 15:47 | 2919444 Al Huxley
Al Huxley's picture

Yes, that's the strategy.  Of course, its really painful during the non-mania stage, but if you do eventually get the mania, it makes up for the pain.

Thu, 10/25/2012 - 16:24 | 2919576 XitSam
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You're expecting that by the time mania comes, physical will be underpriced relative to miners?

Thu, 10/25/2012 - 15:43 | 2919435 Supernova Born
Supernova Born's picture

I would like to know who is teaching uncertainty and to see the syllabus.

Thu, 10/25/2012 - 15:54 | 2919469 XitSam
XitSam's picture

I'm with Hugh.

Thu, 10/25/2012 - 16:10 | 2919526 Honey Badger
Honey Badger's picture

Quote from the interviewer at 5:27:  “You people who are gold bugs often stay gold bugs, you know, to their death with their hold up with their guns in Idaho…”


My quote, “Damn fucking straight, bitchez.”

Thu, 10/25/2012 - 16:35 | 2919614 RockyRacoon
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There's a difference between "holed up" and "hold up".  Look it up.... bitchez.

Thu, 10/25/2012 - 16:44 | 2919672 Honey Badger
Honey Badger's picture

I here you, I was wondering weather to use holed up, than I thought hold up.  Better?  :)

Sun, 10/28/2012 - 22:06 | 2926508 RockyRacoon
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You are forgiven! Well done. Carry on.

Thu, 10/25/2012 - 16:13 | 2919533 BeetleBailey
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Steve Liesman, the boob jester of cnbc, was also at this Buttonwood/Economist conference.

I would like to think if he bumped into Hendry, that Hugh would have slyly kicked his little grape sized balls in with a Scottish leg-roundhouse, when fat boy wasn't looking....

Thu, 10/25/2012 - 16:18 | 2919552 Scalaris
Scalaris's picture


Decorously unpretentious.

"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."

 Every financial industry (coin flipping) professional's motto (or what it should have been )

Thu, 10/25/2012 - 16:24 | 2919575 Tombstone
Tombstone's picture

With so many countries stocking up on gold reserves, why is not the price of gold zooming to the heavens?  Is Benny giving them free gold too?  Looks to me that the central banks are somehow controlling the price of gold and silver.  It just means that the slave class will have to rely on big gov to provide all things.

Thu, 10/25/2012 - 16:38 | 2919637 RockyRacoon
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You really need to subsribe to Ed Steer's daily column:

You'll understand all about that Big Bank manipulation!


Thu, 10/25/2012 - 17:50 | 2919947 sherryw
sherryw's picture

You also need to read Jim Sinclair's site; Scroll back about four days and read forward.

Do NOT follow this link or you will be banned from the site!