Video – Hugh Hendry Visits The Milken Institute (#macro)

Hugh Hendry interviewed in a panel discussion at the 2012 Milken Institute Global Conference

Major take-aways from the interview:

  • Global economy is “grossly distorted” by two fixed exchange regimes: the Euro (similar to the gold standard of the 1920s) and the Dollar-Renminbi
  • China is attempting to play the role of the “bridge”, just as Germany did in the 1920s, to help the global economy spend its way into recovery
  • Two types of leverage: operational and financial; Germany is a country w/ operational leverage; Golden Rule of Operational Leverage, “Never, never countenance having financial leverage”, this explains Germany’s financial prudence and why they’ll reject a transfer union
  • Transfer of economic rent in Europe; redistribution of rents within Europe, the trade is short the financial sector, long the export sector
  • Heading toward Euro parity w/ the dollar, if not lower; results in profound economic advantage especially for businesses with operational leverage
  • “The thing I fear” is confiscation: of client’s assets, my assets; we are 1 year away from true nationalization of French banks
  • Theme of US being supplanted as global leader, especially by Chinese, is overwrought
  • Why US will not be easily overtaken: when US had its “China moment”, it was on a gold standard…
    • implication, as an entrepreneur, you had one chance– get it right or you’re finished
    • today is a world of mercantilism, money-printing, the  entrepreneur has been devalued because you get a 2nd, 3rd, 4th chance
    • when the US had its emergence on a hard money system, it built foundations which are “rock solid”
    • today, this robust society has restructured debt, restructured the cost of labor, has cleared property at market levels
    • additionally, “God has intervened”, w/ progress in shale oil extraction technology; US paying $2, Europe $10, Asians $14-18
  • Dollar is only going to go one way, higher; this is like early 1980/82
  • “I haven’t finished Atlas Shrugged, I can’t finish it”: it’s too depressing; it reads like non-fiction, she’s describing the world of today
  • The short sale ban was an attack on free thought; people have died in wars for the privilege to stand up and say “The Emperor has no clothes”; banned short selling because truth is unpalatable to political class; the scale and magnitude of the problem is greater than their ability to respond
  • We are single digit years away from a most profound market-clearing moment, on the order of 1932 or 1982, where you don’t need smarts, you just need to be long
  • Hard-landing scenario in Asia combined w/ recession in Europe would result in “bottoming” process, at which point all you need is courage to go long