Rutledge Reads The Tea-Leaves: "We Are Investing On The Crust Of A Melted Marshmallow"

Tyler Durden's picture

While much of the panel's discussion is the somewhat typical growth, recovery, global diversification mantra of a homogenized investment community, The Milken Institute's 'Reading The Tea-Leaves' panel was dominated by some deeper thoughts from John Rutledge of Safanad SA. John sees the world not as a series of equilibria like any and every mainstream economist but the exact opposite with earthquakes and tsunamis capable of occurring at any time. In three-and-a-half minutes, Rutledge analogizes investing today as "living on the crust of a molten marshmallow" and notes that 'investing' to him now is "trying to figure out situations in which some stupid policy has created a big wedge between returns on different assets that causes people to redeploy capital" and that is what moves prices. Claiming that the two most destructive inventions of the twentieth century were Modern Macroeconomics and Modern Portfolio Theory (which have caused more loss of wealth than anything else he knows), the optimistic father-of-six goes on to discuss the three storm systems that must be navigated in the world currently: 1) Europe; 2) China's growth; 3) the extraordinary growth of Central Bank balance sheets. He concludes with some insights into why not to own bonds and what bonds say about scarcity of future cash-flows.



From 6:30 to 10:00 John Rutledge of Safanad SA explains his thesis and briefly after this he takes on the panel's view that there has been no central banking money-printing.

At around 18:10 to around 20:00, Rutledge describes his views of Europe 'in a mess' - where he also destroys the myth of correlation, covariance and the entire asset allocation industry

32:30 - Energy demand from Emerging Markets -> good news and bad news facts

33:30 to 35:00 - China has a number of opportunities - you have to go there to understand but: 1) there is a 3-month cycle of liquidation; and 2)  the 'Going-Out' Program means huge outflows of capital with Private Equity benefiting.

At 38:00 he explains his aversion to investing in Chinese firms - I would like to own companies that make their money in Asia but is governed in Australia, New Zealand, US etc... but not Russia whose "economy and politics are run by thugs"

The most under-appreciated world worry is discussed at 53:30 - The greatest risk for me is that "investors are mentally unprepared for the world we invest in"

At 1:07:30 Rutledge sums up his views on where to invest now...

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blindman's picture

investors are schmucks who need to have their money stolen from them by
professionals. no?
what did max call them? oh, "plaintiffs".
and why isn't milken still in prison?

markmotive's picture

Tail risk is 5x worse than you may think. Try building that into a model based on MPT.

rocker's picture

John Rutledge is a anti-american Scumbag.  John Rutledge is a thieving Scumbag. John Rutledge hates Americans.

John Rutledge is a traitor.  John Rutledge helps China and takes jobs out of America.  Screw John Rutledge.

I feel a little better now.  John Rutledge is worthless bat shit.   O.K.   I feel even better now.

fourchan's picture

i wish there was audio to the video

jeff montanye's picture

i don't know about rutledge but bat shit is hardly worthless:

hustler etiquette's picture

I've only heard hearsay about Milken, but he is not in prison b/c the SEC came to realize overtime that he had "novel and often extremely profitable ideas." 

carbonmutant's picture

OK, We all know we're being pulled toward an attractor in our future.

But what is the Strange Attractor in the Global System?

Dr. Engali's picture

The first rule of fight club is there are no rules? Which version of fight club did he watch? Sounds like an attempted acknowledgment of the Hedge.

skepticCarl's picture

That "free-wheeling" panel discussion was more like a Shirley Temple movie than Fight Club. (Sorry for the unrecognizable reference, gen x and y 'ers.)

William Murderface's picture

+1   I wondered the same thing too.  Quite a big swing-and-a-miss right out of the gate for the speaker. 

He's dead to me. 

skepticCarl's picture

The panelist on the far left looked like Willie Nelson, and was about as eloquent as Willie discussing economics.

The next panelist, an Aussie, rather than being Crocodile Dundee, was more Tweetee Bird.

The panelist to the right of the moderator has a head excactly the shape of an old Evinrude outboard motor.  At least he did correctly criticize future Fed QE operations.

John, on the far right, was very interesting and colorful.  Is his full presentation available anywhere?

candyman's picture

Thats funny, I had one of those old outboards years and years ago. BTW the flow rates are STILL 6,000+ on some of the tribs. off the American here no No. Cal.

blindman's picture

he was the guy to show the "nation" the light shown
by globalization through leveraged destruction of local
employment and functionality, dependence on global credit
being the future promised land, milk and honey. aka
we can steal it on the books by moving it off the books
and replacing it with a notice of debt, thank you for your
patience and humanity, back on your book. let's have a conference when i get out of
prison and talk about the strength of the, thank you very much,
system of debt by foreign injection or further debt to unknowable
elements and parties yet to be discovered or born in either
outer space or terrestrial, either way, unavailable for testimony
or interview / interrogation.
yes, let us set up an institute and foundation with the monies
stolen from the globalist, insider deleveraging, releveraging
buyout scams imagined not even in the height of the highest
predator ball orgy. rule the human spirit and world, it is
in our grasp ! and god bless you too, now pay me.
nothing changes, ey? it is a criminal species, man, the spacial
animal, in time.

sbenard's picture

Great analogy -- "investing on the crust of a melted marshmallow". That's even more tenuous than walking on eggshells!

Stuck on Zero's picture

But squeezed between Graham crackers with a slab of chocolate it's yummy.

skepticCarl's picture

Rutledge had an interesting take on the S&P 500: it's a play on China/Asia growth, as the big internationals of that index derive most of their profits and growth in Asia.  He particularly liked recourse companies, and manufacturers, mentioning CAT.

Evinrude head was old-school buy and hold, in-the-box thinking.  He tip-toed out of his secure, old-boy PTB position to say that the Fed's QE resulted in world-wide commodity inflation, and more QE would be a disaster for the world, and no help to the moribund U.S. economy.

PeeWee Herman had trouble holding up his tiny frame, and leaned on his right arm throughout.  I have no idea what he said.

Willie Nelson's "upside surprise prediction" was that U.S. growth stocks would be the biggest winners in the next twelve months, due to their relative bargain valuations.  Come to think of it, this guy looked more like Bernanke than Willie.  Maybe he intends to become a Bernanke impersonator on SNL.  He's even got the less-than-confident voice quiver.

Seafarer57's picture

Rutledge is fascinating on this panel: "reflation like the 70's"!! He was one of the economists on the Reagan team in 1981 which cut tax rates and cap gains resulting in massive redeployment of capital and creation of millions of jobs.

He spent the last few years in China and knows those markets. His view of finanical markets as high and low pressure systems is interesting. "Asset allocation makes no sense" and "The fed has printed enough money to triple US price levels."

more info from Rutledge at


shortus cynicus's picture

see 55:30 - a question about gold.  Look at their funny faces - its all politics and they all agree on that so they don't "invest" in gold. But they like to hold cash - but only created by central banks and violent governments - I've lost them in that moment.

What a bunch of political correct and statist minds.

William Murderface's picture

That bald guy sounds like my old Speak & Spell.

WhiteNight123129's picture

The bold guy sees supply and demand as the only drivers of price....classic monetary illusion.


pcrs's picture

Just Russia where things are run by thugs? It's just harder to see in your own propaganda place. People that 'run' other people's lives are thugs by definition.

Zero Govt's picture

"People that 'run' other people's lives are thugs by definition."

Very well said.

Perverse we allowed Govt, now we're living with that global perversity 

"nobodys fault but mine" as Led Zep once said

Stop Payng Your Taxes ...don't fund the thugs

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