Video – Hugh Hendry Interviewed By Steven Drobny At LSE (#macro)

Hugh Hendry interviewed by Steven Drobny at the London School of Economics, 2010

Major take-aways from the interview:

  • How he got his start: began at an eclectic asset management firm in Edinburgh, which rotated its young associates; began at age 21 in the Japanese stock market the year after it peaked in 1990; the next year rotated to UK large companies; the next year US equities; moved to London in 1998/9 and no one would employ him because he was a jack-of-all-trades, master of none
  • 1929/1930 marked a “revulsion with debt” period, which changed very slowly, ultimately eradicated from society in 1973/74; then the opposite cycle occurred, with society massively leveraging; during this upswing, it has paid to be optimistic and the financial economy has become the economy; we appear to be on the verge of a generational shift again, where farmers will reign over hedge fund managers
  • Macro opportunities are created by the interactions of economics and the abilities of politicians to try to fudge them
  • “The best trade is the one where you don’t fear the consequences of being wrong”
  • China
    • China’s economic development strategy is not unique, it’s just large-scale; economy is being directed toward sovereign-profit, not corporate-profit
    • Pursuing sovereign power over economic power results in building your economy on foundations of sand; Japan tried the same thing and it appeared to work until it was revealed to have not worked; Confucius saying, “Wise-man not invest in over-capacity”
    • China is like the sun, you can’t get too close or you’ll melt (can’t short equities in China, HK, or commodity futures or equity derivatives in the West); used the “satellite”, bought CDS on a basket of Japanese industries, as Japan is very reliant on trade with China– steel, for example
  • If we’re going to have hyperinflation and the dollar loses its value, you need something profoundly negative to shake the course of economic growth globally, because only if that happens will the central bankers respond with this dramatic decision of hyperinflation
  • Slowdown in China, economic restructuring in Europe would be the economic equivalent of a meteor hitting Earth
  • Market call: the Yen and the USD could appreciate greatly, because there is so much borrowing in those currencies, if asset values take a hit, you have a shortage of dollars or Yen to pay against the collateral values of that lending; combined with calls on the Nikkei at 40,000, 50,000 (want to be very long equities at that point)
  • Good hedge fund managers give great weight to the consequence of their actions and are fearful of them, so they won’t be hurt too much if they’re wrong
  • Being plasticine: we spend so much time trying to see the future, we’re deluding ourselves because we have no chance to see the future; better to be careful and flexible, avoid dramatic injury and maintain optionality to respond to whatever the future holds
  • Be a centipede, not a mountain climber; have a hundred legs so you can let one or two go if you have to do so
  • Strategically, it’s not rational to try to outsmart bright people; bright people are encouraged to be logical in their constructions; my business franchise is trying to get opportunities from the arcane world of paradox, disciplined curiosity, the toolset of the maverick