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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RockyRacoon's picture

It appears that someone (or thing) doesn't like our suggestions.   Hmmm.

Lord Koos's picture

I've thought about this quite a bit and it seems to me that one reason the PM prices are controlled that it gives some of the more gold-poor countries such as China, etc, the chance to play catch-up to the Western nations who (allegedly) are gold-rich, before the price gets totally out of control. Levelling the playing field in this way may help avoid some wars in the future... perhaps this is what the elites are thinking.

Oldrepublic's picture

David Morgan thinks that when silver gets to around $75/oz, then penny mining stocks will be very popular.Price could go from 18 cents to $1.80 very quickly.He thinks that so called late to the party people in regards to buying silver will jump at cheap silver penny stocks. "People love cheap stocks," according to Morgan

hustler etiquette's picture

There are two things in this world I'm in awe of. Formula 1 and Hugh Hendry.  Now if only there was a way to combine the two in one setting

q99x2's picture

That was nice. He had to exit stage right instead of stage left as his mind continued on what he had said. A little stuffy.

Tango in the Blight's picture

I wish I had bought gold in 1999. I had Microsoft stock then stupidly put them in Asian tiger economy stocks prior to the Asian crash in 1997. What did I know back them was too young to have a clue. :S

jerry_theking_lawler's picture

in late 90s...i had an employee (older man) who bought a gold coin EVERY week, usually 1 oz. he tried to explain its intrinsic value and what real money was. i would sit and look at that shiny, flat, lifeless piece of metal on my desk and would laugh. i would ask him, will it return 8% annually like my Worldcom??

guess who is laughing now.

Supernova Born's picture

Hugh Hendry is to investing what David Lynch is to filmmaking.

ZH11's picture

He has the words vague and insincere over his left shoulder.


Is this relevant?

yabs's picture

Not sure about some of his analysis

How can holdfing gold miners be insanity that are leveraged to the rpice of gold?

makes zero sense

Also his statmenet  about inflation is ludicrous

he like Mish seems to equate inflation to the increase of credit

to nor mal people inflation is just how much things cost and the price of living

are food and energy prices more or less than 2009 Hugh?

Cosimo de Medici's picture

Nothing is more clear, after watching a number of these speakers, than the fact that QE benefits no one except the upper edge of the population.  They all but admit it.  Perhaps one cannot blame them for reading the writing on the wall and playing accordingly, but what is happening----and will continue to happen for the foreseeable future---is that the money players get more free money plus the road map as to where Bernanke and other CBs are heading, and the vast Middle gets austerity.  So long as everyone from Greeks to Spaniards to US workers are willing to accept austerity---perhaps blowing off a little steam on the way to resignation to their accident of birth---it's biscuits and gravy for the upper crust.  Bernanke et al will never stop.  Some will argue that this is the plan.  Others will aver that they won't stop both because they are incapable of admitting they are wrong, and because they have created a positive feedback loop where their models tell them their models are working.

Nobody can say when it is all going to blow up (as Hendry admitted), but as Einhorn implied, there will be no economic recovery until the end of ZIRP-e-QE-ty, if even then.

Michigan's picture



Sounds like the easiest job in the world.


"I don't know where anything will be, but hold it in Gold. That will be 100mm/year please"