Nov 202014
 November 20, 2014  Posted by at 10:10 pm Finance Tagged with: , , , , , , ,

Jack Delano Colored drivers entrance, U.S. 1, NY Avenue, Washington, DC Jun 1940

It’s funny how things roll at times. When I wrote yesterday’s Making Money While The World Burns, and quoted Hugh Hendry, one of my heroes – well, close, he’s not Ali, but I love the man for his brain -, I hesitated, but thought his words were a great way to start a discussion on what people do when faced with certain conundrums. I certainly never meant to attack Hugh, though words can always be construed to mean things they were not meant to mean.

David Stockman picked up the essay (Jim Kunstler told me to use that word) and retitled it Making Money While The World Burns – The Troubling Case Of Hugh Hendry. Bless David for all the great work he does, and I would never even suggest he shouldn’t add that bit, that’s entirely his prerogative, but I myself would never call Hugh Hendry a ‘troubling case’.

I merely wanted to get a discussion going, and maybe to get people thinking about what they choose and why. Not to judge anyone, who am I to do that, but to get people to ask why they act the way they do, and what it is that makes them tick.

If I would want to judge anyone, it would be the politicians and central bankers who pretend they serve the public and then turn on a dime and screw that same public. Hugh Hendry doesn’t pretend to be anything he’s not. However, I can still ask questions about why he chooses to do what he does, and use that as a mirror, for lack of a better term, to gauge where I stand, what I think, and put that out there for my readers.

But I’m not Hugh Hendry, I’m not a hedge-fund manager, and I don’t morally judge people or tell them what to do and what not. That would be like starting a religion, separating right from wrong for other people, and I have no design on that. I’ll admit I thought about that religion thing in the past, but that was because it seemed the greatest way to get girls, not because I want to tell anyone what to think or do. As things went, I started a band, and that worked just fine, thank you very much.

Short story long, Zero Hedge’s Tyler Durden today posted a video and text excerpts of Hugh explaining his mindset, and included snippets of my ‘essay’, saying “Raúl Ilargi Meijer has a different perspective on Hendry’s change of tack”. And I don’t even know that I do. I’m just less focused on the short term, and the potential financial profits involved, than Hugh is. As I said yesterday, I think about the 50% increase in homeless kids in the States and the 50%+ jobless rates in southern Europe, and wonder if that justifies the drive for monetary profits.

But that’s just me. And I find it curious enough that that moral divide is never being breached in all the stuff I read every single day. It seems so obvious to ask that question. But that’s not the same as saying I judge Hugh Hendry, or anyone else, for not bringing it up, let alone living up to any conclusions I draw from it for myself. If there’s anything we need around here, it’s independent minds and neurons, not identical replicas.

So, Hugh talks about how he was a ‘bear’ and saw the error of his ways and is now a bull. But that’s just in as far as his ‘duties’ towards his hedge-fund clients are concerned. It doesn’t say anything about his longer term expectations. Which, I venture, have not changed, but merely been relocated to more remote locations of his – pretty brilliant – mind. And the gist of my question is, I guess, how other people process that short vs longer term divergence, if they are smart enough to see what Hugh does.

What Hugh Hendry implies that he got ‘wrong’ is that a few years ago, he saw, and understood, what was happening, and acted on it. And it’s not that he misunderstood, but that his acting on it did not garner the short-term profits he claims he’s tasked with making – as a fund manager -.

Because the financial system – as Hugh knows – may be screwed three ways to Sunday, but central banks have prevented it from showing its – fatal – injuries, by dressing it in layer upon layer of gauge and band-aids made of and paid for by the real economy’s present and – especially – future wealth and labor.

In the end that means you’re making money off of other people’s misery, be it in the present or the future. And that is a stark choice. In my view. If an economy stops growing, the only profit opportunities left involve taking something away from someone. Obviously, there’s tons of people who’ll swear our economy is still growing, but they’ll find neither yours truly nor Hugh Hendry in their camp.

Here’s Tyler Durden’s piece, with Hugh Hendry video and partial transcript:

Hugh Hendry Live 1: “It Felt Like The Sun Only Rose To Humiliate Me”

In the first of three interviews with MoneyWeek’s Merryn Somerset Webb, Hugh Hendry, manager of the Eclectica Fund, talks about what it takes to be a good hedge fund manager – and how he learned to stop worrying and love central banks. Key excerpts (click link above for full transcript):

MSW: What makes a successful hedge-fund manager and whether you are, under that definition, a successful manager.

Hendry: I think I’ve always answered that question by relating back to the ability to conceive of a contentious posture. I think if I was to quote from Fight Club, I think there’s a famous saying “Would you rather…” my children would say ,“Would you rather upset God or have God just ignore you?” There’s a degree to which being a successful macro-manager is upsetting, not only God, but to the rest of the world, if you will. By being out there with the articulation of qualitatively intelligent argument, which just isn’t shared by the majority. But which can stand the test of time and come to actually define the future. That is what global macro is all about.

With regard to language the notion of ‘bullish’ and ‘bearish’, I think, does an injustice to the complexity of the arguments that are necessary to construct a global macro hedge fund. I think if I had my time again, I would have been saying that we’re actually, perhaps, guilty of the misconstruing of a bull market in equities, for what is actually the ongoing degradation in the soundness of the fiat monetary system. I think that’s what I was trying to say.

MSW: You had given in to a bull market that you had refused to accept previously.

Hendry: The last time I was really angry was late 2010-2011. Where the market, in its wisdom, had yet to configure the changing economic landscape, and it was perceiving that the economy in Europe and elsewhere was recovering. I thought that was just insane, that we weren’t capturing the kind of deflationary zeitgeist that was approaching. I have to say when I look back in the last three years it feels as if the sun only rose each day to humiliate me after that point.[..]

But the mea culpa, that I think is very necessary in that I found myself unable to forgive the Federal Reserve and the other central banks for, if you will, bailing out Wall Street from the excess of 2008. I just couldn’t get over it. I luxuriated in the polemics of Marc Faber and James Grant and Nassim Taleb, in our own country, Albert Edwards, et al. I luxuriated as they ranted and it was fine for them to rant. But I am charged with the responsibility of making money and not being some moral guardian and certainly not a moral curmudgeon. I had to get over that. So again, back to my infamous letter of last year.

That was cathartic for me to say “You know what? I get it.” I think if we’re going to try and explain the qualitative arguments behind why we are more receptive to the notion of not only left tails where markets can fall, but the right-hand tail of the expression, where markets can actually continue to rise if not to accelerate. [..] So I really feel very, very isolated from their view of the world. Arguably, we’re talking about the here and now and the future’s a long time. But in the future, I’m sure our paths can converge once more.

MSW: Why do you think that [macro funds] as whole is failing to make money? What’s going on there?

Hendry: I can reflect on my own difficulties, if you will. What I’ve found is that macro is distinguished, I believe, by superior risk control. It’s almost analogous to a disaster insurance programme. In 2008, all the good macro managers, they made you money. That’s what you pay them for. The world became profoundly unsettling and you cashed in your insurance policy. Today, I question the relevancy of that disaster insurance. In a world where the central banks seem to have your back, seem to be underwriting risks and global asset prices, do you require that intense scrutiny of risk?

MSW: So your basic point here is that if the central banks have your back, there’s no need to have the same kind of risk controls that you used to have.

Hendry: There is less need. Less need. I tell you, I was at a conference with some of the great and the good global macro managers in September in New York and I asked them all the question, “If the S&P is down 12% what do you do? Are you selling more or are you buying?” Guess what? They’re all buying. So the central banks have created a behavioural tic which is becoming self-reinforcing and I believe we saw another manifestation of that behaviour in October.

But Raúl Ilargi Meijer has a different perspective on Hendry’s change of tack…

Hendry, I think, is as bearish (or negative) about the – future of the – world as he has been for a long time, only he’s decided to see things from his fund manager point of view, and to ride the crest of the waves the central banks have tsunamied towards our shores. He’s chosen to make a buck off of them waves, even as he’s aware of the damage they’ll will do once they hit land. In the exact same way as a surfer who sees a tsunami as merely a set of great waves to ride on. And, no value judgment involved, but that’s not what I see.

He sees the world going to hell in a handbasket (and Hendry recognizes that very much, that’s not why he shifted gears from bear to bull) and his response is to grab as much money and wealth as he can (for his investors … ). [..]

Hugh Hendry sees the world in an extremely bearish way, he sees hell, the handbasket, brimstone and far worse. But he wants to profit – in name of his investors (?!) – from the very mechanism that drives the world there: the power central banks and governments have been allotted, and the way they use it to protect the interests of investors, banks, insurance companies and uber rich individuals, all at the expense of booting the 90% who make up the real world and the real economy, ever deeper into the mud.

Seeking to profit from that is a choice. Hendry makes it, and so do many others, even many inside the 90%. Who mistakenly dream they’ll be able to hold on to those profits (they’ll wake up yet, and wish they had before). The whole idea of scraping out what you can before the tsunami hits is not my thing.

I don’t think Hugh Hendry and I see the world through hugely different eyes at all. It’s just that since I don’t have uber rich clients I tell myself I need to make even richer, I have the liberty to wonder what Hendry’s choices mean for the bottom layers of society. And yes, I also think that societies cease to function if the poor get too poor. Not very Hobbesian or Darwinian, am I?

By all means, let’s keep the conversation going, and let everyone decide for him-her-self where (s)he stands. Hugh Hendry thinks in money terms, and I tend to feel that’s a waste of a brilliant mind. But that’s not a judgment. It’s merely a question. And a pretty well defined one at that: Is a brilliant mind better engaged making money for the rich or trying to alleviate the sorrows of the poor? I can’t answer that for you.

Home Forums Hugh Hendry And The Deflationary Zeitgeist

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    Jack Delano Colored drivers entrance, U.S. 1, NY Avenue, Washington, DC Jun 1940 It’s funny how things roll at times. When I wrote yesterday’s Making
    [See the full post at: Hugh Hendry And The Deflationary Zeitgeist]


    “If an economy stops growing, the only profit opportunities left involve taking something away from someone.”

    Is that really all so different from when the economy is growing? For example, you’ve often referred to our grandchildren.


    No Steve, I know, but it becomes a more direct transaction. All our growth has always been based on eating someone’s kids, but now it’s our own, because no-one has enough kids anymore to satisfy our greed.


    As a tenet of our society, and now increasingly the rest of the world, we worship the accumulation of wealth. It doesn’t seem to matter if it is ill-gotten, just shady, or from hard work and good luck. Although hard work and good luck seem to be the hardest way to get there, if at all. As long as this love of wealth is instilled in everyone’s way of thinking there’ll be little to no debate on whether it is ethical to profit on others misery. It used to be religion’s role to bring up uncomfortable things, but that is the exception to the rule now. We now worship money-and power. Until a lot more people are suffering and the blinders come off there will be little debate.


    Hendry’s fiduciary responsibility is to his clients. That’s just the nature of the business he’s in.

    That said, all this dovetails with the grand finale coming up, that is “The Crackup Boom.” He seems to understand that, and is simply making lemonade from lemons.

    It serves no purpose to go broke in a Centrally Planned disaster, over which one has no control. To the contrary, one should preserve capital with which to contribute to rebuilding the mess later.

    Reminds of the old adage, “I love my country, it’s my government I can’t stand.”


    @ Ilargi,

    “I’m just less focused on the short term, and the potential financial profits involved, than Hugh is. As I said yesterday, I think about the 50% increase in homeless kids in the States and the 50%+ jobless rates in southern Europe, and wonder if that justifies the drive for monetary profits.”

    Further to my devil’s advocate views on your Hugh Hendry post the other day, I look at your comments and find myself asking why you’d think it was a question of long-term vs. short-term?

    You see, if it wasn’t Hugh Hendry, it would be someone else pushing for those monetary profits. Those homeless kids and the higher jobless rates are baked into the cake – whether by human nature or by the fact we’re too far down the road to stop it from happening – and the only questions are who’s gonna book those monetary profits, and whatever will they do with them (i.e. spend it on)?

    Personally, I find it a shame that you’re not a billionaire-investor with the short-term in mindset; perhaps you would be the one booking those monetary profits and reinvesting them into helpful solutions like transition towns, public education/awareness on the virtues of preparedness and the ills of over-consumption, buying up land to turn into conservation areas, and buying up politicians to prevent them from changing the laws to allow pipelines to be run through said conservation areas.

    But, alas, you are not a billionaire-investor. Those who Hugh Hendry works for will gladly see children become homeless and good people lose their jobs to ensure the cash flow that sustains their ultra-lux / over-consumption based lives continues on uninterrupted. If Hugh Hendry has a problem with that, he will be quickly replaced by someone with less moral reservations and a greater dedication to customer satisfaction.

    C’est la vie.



    Correct me if I’m wrong but isn’t it the job of fund managers to make money from money? If that’s true, then I think it’s perfectly OK to judge them. It’s a useless profession offering nothing to society except misery down the line.

    Jef Jelten

    One thing I learned during my last marriage to the daughter of a wealthy high ranking politico was that the wealthy are also a slave to money, perhaps even more so than the average person because they have more of it to tend to. They just have better slave quarters.

    The universal fear of the wealthy (after the fear of death which is actually connected) is that their wealth will go away, and with good reason because it constantly does. FACT: If your money is not becoming more money it is becoming less money and there is a list a mile long of things that can happen that will make your money disappear in a blink.

    The underlying problem is the fact that every dollar MUST become a dollar twenty-five. NOTHING else matters not people, not property, not laws, not the environment, NOTHING.


    This post seems odd for TAE. When I first came here, I scoured all of the archives reading up on the coming storm. I was most impressed with the idea of building a “lifeboat” to prepare for the coming deflation and social unrest. As a result, I began a serious effort to eliminate debt from my life. I stopped contributing to my 401(k) at work and used the money saved to purchase 30 acres of property in the forest. I plan to build a 12 x 12 cabin on that property as a safe house for when the SHTF. I took the bulk of my 401(k) out of stocks about 6 months ago, thinking we were about to crash. I feel much like Hugh, in that I’ve missed a chance to come closer to paying all my debt.

    I have a goal to reach a “crossover” point. That is the point at which my retirement savings are greater than my remaining debt. I’m about $95,000 short. So if the SHTF now, I’ll simply have to default on my home mortgage and use my 401(k) to finish the cabin in the woods and live off of what I have saved (if I can get to it).

    One comment I recall vividly from Nicole was that she wasn’t spreading her word to try and save the world, she was doing it to help us “save our asses.” I intend to save my ass and my family’s. Anyone else who can contribute labor to clearing my forest land and growing crops and raising livestock is welcome to join me, within reason. So, I figure if I’m prepared, I can at least help some others who aren’t.


    @ Lawfish,

    If your property were anywhere in southern Ontario, I’d trade labour for knowledge/experience (and a good laugh or two). I’m a city slicker, and could benefit from building up some crop growing / land clearing skills (until the folks buy their retirement property, at which point I assume they’ll be getting all the free labour out of me they possibly can).

    (please note, the quality of my labour may be slightly sub-par, given my sedentary office-working lifestyle… d’oh!)

    Though given the fact you’re talking 401(k)’s and not RRSPs, I’m gonna go ahead and assume you’re a Yank and not a Canuck…


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