Nov 192014
 November 19, 2014  Posted by at 11:07 pm Finance Tagged with: , , , , ,

DPC Launch of battleship Georgia, Bath, Maine, Oct 1904

I was reading this letter to his fund investors by Hugh Hendry, a very intelligent and probably slightly autistic fund manager I’ve liked a lot forever and a day and have written about quite a bit in the past, and it got me thinking about how and why I see the world different from the way he does, and wondering how you see that difference.

Hugh was for years known as a true bear, and then he turned around, changed his views and turned bull, only at the same time he did not. If that makes any sense. I’ll take you through the letter as posted by Tyler Durdenand try to explain what struck me in it. It’s much easier and safer not to write things like this, but I think there are things you must explore, like how do you react when realize your world is falling to bits.

Hendry, I think, is as bearish (or negative) about the – future of – 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 … ). My response is different: I don’t see filling my personal coffers as a priority when I see the numbers of homeless children in the States shoot up, or the over 50% of youth without a job or a future in southern Europe for many years running, or all the other stuff that goes awfully wrong all around here behind the ‘recovery’ veil, stuff that Hendry is acutely aware of.

I simply think other people’s misery, especially when it comes in droves, is a bigger threat to my existence, my lifestyle, my society, my community, and certainly my peace of mind than having a few bucks more or less. We’re not in some market cycle move here, we’re in something much bigger. And Hugh Hendry knows that too. I don’t believe in ‘we have a world to save’, I think that’s beyond our means, but I do see a responsibility towards smaller units, a town, a society, perhaps even a country, simply for our own sakes and that of our children.

And I think viewing today’s world primarily through a fund manager’s eyes, especially if you have the brains to see more and wider and bigger, is poor and bleak. And if you’re Hugh Hendry, you don’t need the money to keep yourself from starving. It becomes more like Bill Gross who at an age when most men have long retired, moves from Pimco to some other fund to make even more money. It turns into the kind of poverty that money can not hide. Here’s Hendry:

My premise hasn’t really changed since I published my paper explaining why I had become more constructive towards risk assets this time last year. That is to say, the structural deficiency of global demand continues to radicalise the central banking community. I believe they are terrified: the system is so leveraged and vulnerable to potentially systemic price reversals that the monetary authorities find themselves beholden to long only investors and obliged to support asset prices.

However, I clearly confused everyone with my choice of language. What I should have said is that investors are perhaps misconstruing rising equity prices as a traditional bull market spurred on by revenue and earnings growth, and becoming fearful of a reversal, when instead the persistent upwards drift in stock markets is more a reflection of the steady erosion of the soundness of the global monetary system and therefore the rise in stock prices is something that is likely to prevail for some time. There is more to it of course, as I will attempt to explain, but not much.

[..] the world’s monetary authorities are targeting higher risk asset prices as a policy response to restoke economic demand. Whether you agree with such a policy is irrelevant. You need to own stocks. And yet, remarkably, the most contentious thing you can say in the macro world today is “I’m bullish”.

In a world dominated by the existentialist angst of identifying and trading qualitative value, there is profound mistrust of equity values today; macro investors see prices as overvalued and few are willing to capitalise on the opportunities to make money.

This angst and fear of big drawdowns in risky assets in part reflects astonishment that policy makers were able to rescue investors from the folly of their misallocations in the years preceding 2008 and that stocks have massively outperformed the modest rise in global nominal GDP. I should know. I, like others, became a moraliser who just couldn’t forgive the Fed for bailing out Wall Street.[..] I became a moral curmudgeon rather than a money maker.

As you know, I have sought to overcome this deficiency. However my risk controls, or rather my procedures for dealing with big monthly losses, seemed to anchor me to the bearish camp (against my better wishes). [..] since the end of last year I have been a bull that had to sell for lower prices. No wonder I couldn’t make you money. But perhaps you don’t need such reactive stop loss policies when the world’s central banking community is intent on protecting you; [..]

Japan was down 16% from its highs earlier this year. I was particularly long Japanese equities at the start of the year and so at some point, fearing greater losses, I swallowed my pride and booked a loss. However, the ongoing policy intentions of the BoJ meant that the stock market clawed back all of its losses. Why did I sell?

European stocks fell almost the same over the summer but again the ECB upped its ante, pushed short term rates negative, tolerated a weaker currency and promised to re-stock its balance sheet with more local risk asset purchases. Lo and behold, European stock prices recovered sharply in August and early September. So why did I reduce my holdings?

October is simply another example. US stocks fell over 10%. I don’t really know why. Was it the threat of the end of QE or a global pandemic or more misgivings as to the state of affairs in Greece and Europe’s enduringly weak economy? It doesn’t really matter. […]

So why all this enthusiasm for upside equity risk? [..] The FX market tends to take the US Supreme Court view. Overruling an obscenity charge for showing a salacious French movie in Ohio in 1964, Justice Potter Stewart wrote that the Constitution protected all obscenity except hard core pornography. Unwilling to define the latter, the judge maintained that he would know it when he saw it. [..]

Which is a rather long preamble to describe what I believe is a very analogous central banking intervention in today’s financial markets. It would take just too long for the Fed, ECB or the BoJ to rely on a return of animal spirits in the real economy to lift their flagging economies. They need the remedy of fast moving risk asset prices. By using QE to promote more risk taking, asset values in the US have risen faster than fundamentals and, with better perceived collateral and more confidence, the demand for risk taking in the real economy has recovered somewhat. At a lag, the theory runs, so will the rate of expected inflation.

So I think we find ourselves especially in Europe (and Japan) with a situation whereby the central bank has to use all of its powers to engineer higher stock and bond prices. And I think the precarious nature of France and the election timetable in 2017 means that they need higher European stock and bond prices NOW or there will be no economic recovery, budget deficits will continue to overshoot 3% and the Euro area will get trapped in the poisonous and perpetual cycle of having to demand more and more unpopular austerity measures. This is high stakes: boost European stock prices or risk losing France and the euro. To my mind the message is simple: don’t short French bonds, buy European stocks and short the euro.

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.

Hugh Hendry recognizes, as many other people do, that there would be no viable markets left if central banks wouldn’t have kept them standing up for years now and made us all pay. But he, and many like him, still think that the best thing to do in that situation is to grab what you can before it’s over. I think that is worth asking a question or two about.

Of course it all depends on how bad you think it will get. Well, Hendry has an idea, just look him up on YouTube, and I have an idea, and so do lots of others. None of us can be sure what the use of a few bucks more or less will be when things get as bad as we think they will get. But there’s no certainty anywhere in sight. And for me, that means what’s more important, and what is certain, are things like this Simon Black graph, that makes me wonder what on earth we’re doing around here:

You see what’s happening to these kids and your answer is let’s make as much money as we can? That’s how we think? I’m sure a lot of people, rich or poor, have pondered how to get more self-sufficient, and a few have taken great strides towards that too. But I’m also sure the successful ones in that regard would all agree that money in the end had very little to do with it.

So do or don’t we have anything better to do with ourselves than make money while the world burns? And do we think the money we might make will have much value once the fire spreads? If the ‘world of money’ is in as bad a shape as Hugh Hendry says it is, and can only be maintained by ever more desperate machinations by central banks, until it evidently can’t? There doesn’t seem to be a clear answer, to put it mildly.

Is making and hoarding as much money as you can the best answer to a collapsing financial system which may or may not leave much value in that money? Same for gold, silver et al, though many people see just that as the big answer.

In the end, the issue may be whether amassing material wealth is the right answer to the demise of a system based on material wealth. A suggestion is that perhaps growing your own food and learning how to make the things you need, yourself, is a better answer. Just because you have money, or gold, doesn’t mean you can buy things with it. Don’t mistake money and self-sufficiency.

And that’s what Hugh Hendry’s shift from bear to bull, but not really because he knows where it’s going, made me think of. Now it’s your turn.

Home Forums Making Money While The World Burns

Viewing 19 posts - 1 through 19 (of 19 total)
  • Author
  • #16711

    DPC Launch of battleship Georgia, Bath, Maine, Oct 1904 I was reading this letter to his fund investors by Hugh Hendry, a very intelligent and probabl
    [See the full post at: Making Money While The World Burns]

    Ken Barrows

    Isn’t the simple fact that one makes a living trading the “markets” (however well) indication enough that s/he isn’t really concerned with societal well-being? The trader may think s/he creates wealth (you define it!) that will trickle down, but such an opinion is wrong.


    I think your statement of, “How bad will it get?” sums it all up. How do you adequately prepare for a future that could be anywhere from somewhat worse to complete chaos? In that regard, gold and silver could be very useful-or entirely worthless, depending upon how bad society breaks down. A neighbor remarked recently about another neighbor’s solar panels: “Do you really want lights on when nobody else has any?” Good question.

    In regards to Hugh Hendry, he is simply doing what he is well paid to do. Nothing more, nothing less. I would not expect him to be some benevolent advocate for anything. There are much better people to look towards for insight.


    Pure individual self-sufficiency isn’t a good answer. For people with SOME extra income and influence, a better answer is to help set up and support local distribution systems for food and money and manufacturing. Nothing mysterious or magic, just return to the pre-1970 “granularity” of business arrangements and power grids. Assume the US government will collapse but county gov’ts and some state gov’ts will remain.

    Unfortunately the city gov’ts in US are not going to help. Many, perhaps most, have been quietly taken over by Michael Bloomberg. Most mayors are now Bloombots. They serve the Casino above all, which means they favor free trade, financialism, Gaia-worship, and universal surveillance.


    In fact many fund managers did quit once the Fed became the market. I do not begrudge Hugh Hendry. Yes, he is making money, but his position also gives a certain legitimacy to his warnings and criticism. If he had closed up shop and retired, would anyone pay attention to him anymore? Many of the sharpest critics of the financial system are themselves products of the system. Rather than suggest they should stop making a living off their knowledge of how the system works, I think our efforts should be directed to waking people up to hear their message about how the system should be changed.


    I think making money/having money will be irrelevant when the system collapses or when disaster strikes. Imagine this scenario. Bush fires – I am thinking Australia – are raging and cannot be controlled. People are on the beaches trying to get on the few boats to New Zealand where they will be safe – if they can get across the Tasman – except New Zealand will only let so many in and it has earthquakes….. Do you really think some person trying to get on a boat will accept money for his place? If he does I think the rich person will be killed and that place will be taken back by that other person. Anyway in such circumstances the AUD$ will have no worth in New Zealand. And talk of gold and silver is just silly. Life will not be orderly. I think just work out how you could survive in a disordered society. Cooperation just might provide an answer.


    How bad could it get? Just imagine that the TBTF actually did fail. That for what ever reasons, the government was unwilling or unable to bail them out of their extremely leveraged derivative positions. Not only would actual money be in short supply but credit would be possibly cut off as in credit cards too. How do trucks get fuel in this day and age. The drivers don’t carry tons of cash with them, they operate on credit cards. Just extrapolate out what would happen when trucks don’t run for a week or a month? Fuel doesn’t get delivered nor does food. Things could get really ugly.

    The financial industry is not only out of control but the consequences could be very dire. Congress should have reigned them in after the 2008-9 debacle but they are dysfunctional. Government is being torn between competing interests as the big Monopoly game has not yet been won and all the players are all in. Not only all in but most are leveraged to the hilt and no one wants anyone else to win so Congress is gridlocked. This leaves the out of control financial idiots still trying to leverage the big win and take out all the other players.

    What they don’t really understand, or maybe they do but the game is on and they can’t be distracted, is that winning is really losing. What happens when someone wins at Monopoly? You either fold up the game and go to bed or you divide up the money and start over.. This will be no different except that we are talking about people’s lives and industry and country and families. I surely wish that enlightenment would come and all this fighting to win/lose would end. What is going on in the USA today is just insanity and will end very violently.


    Patricia, I think our fears of disorder and breakdown are greatly exaggerated. Periods of chaos and upheaval following economic collapse tend to be brief and localized. The only exception is when all of the angst gets channeled into the war engine, and I think that is where the real risk lies.


    with regards to having electricity when no-one else does – perhaps I wouldn’t put the lights on , but your neighbour may soon be round with things to store in your freezer….

    Golden Oxen

    Where would we be if they didn’t come in and save the financial system?

    Would the deflationary collapse we got a glimpse of in the 2008 debacle created more or less poverty for children.

    Deflationary collapse is possible, but not an option a sane person would ever choose if it could be averted.

    Print they always have, and print they always will.

    Nothing is perfect, but inflation and being poor in a country with a functioning financial and welfare system, sure beats standing in a soup line with the entire country.

    This does not mean that there could not have been better ways to print out of the debacle than the one chosen, or that prosecutions and jail sentences for the bankster clan should have been so noticeably absent.


    I don’t hold any grudge against Hugh Hendry, I’m simply using him as an example, or as a mirror. David Stockman runs the article and called it ‘Making Money While The World Burns – The Troubling Case Of Hugh Hendry’. I would not do that. People need to make their own choices, Hugh makes his, and I make mine.

    That said, I am surprised this is not a debate that many more people are having. If there is no growth, profits must come from squeezing others. Hence homeless children and issues such as that. (US homeless kids rose 50% in 4 years time). Question is, do we want that? And if not, what are the options?

    V. Arnold

    I think we’re on the verge of a post apocalyptic society. We’re there, but not quite full blown…
    Serious decisions loom: Time to decide about how you’ll live; what are your values, limits, and penchant for personal violence against other and what are you willing to do to protect self and family…
    To clarify; I’m not saying we’re moments away from total collapse; just recognize we’re in a form of collapse, just not the stereotypical, dystopian view, of the general MSM’s version 2.0.

    Golden Oxen

    “I don’t hold any grudge against Hugh Hendry, I’m simply using him as an example, or as a mirror.”

    It would appear you consider him harming children by buying stocks. If he were shorting stocks recently and loosing his money, or his investors money, would that be helpful to the poor children?

    Politicians and government employees being driven around in limos all day, having champagne and escargot luncheons, and living the lives of royalty on our dime are a better class to complain about squeezing others, than someone taking chances in the markets. As our elected representatives, shouldn’t they be sacrificing a bit to help the poor children?


    @ Ilargi,

    Okay, I’ll bite (i.e. play devil’s advocate).

    I think you’re totally off base. I think you should be out there making every last dollar you can! In fact, there’s probably an argument that all of us ‘enlightened’ TAE’ers should be out there making as much as we can, if only to keep it out of the hands of greedy 1%’ers (who will just blow it frivolous/ultra-lux things they do not need), ignorant investors (who will roll it back into the markets and lose everything when the markets finally crash), and the tentacled-grasp of Goldmanites and their ilk (hookers and blow ain’t free, ya know…).

    If you/we go out there and make as much as you/we can, the world might be a little bit better off when everything goes to hell in a hand basket. I have some faith in you/we taking that money and reinvesting it into community initiatives and/or giving it away to relieve the suffering so many of the masses are likely to have to endure in the future.

    Obviously TAE is a great source of information and a community (of sorts), but a solution it is not. Telling people to learn to grow food for themselves and learn to live within their means is a good start, but many will find it preachy and turn away from the message that is shared here (as it is a message one has to discover on their own terms, not be forced to accept). Some might say “well, then they deserve whatever happens to them” and I have to agree with that sentiment for the most part. But there’s another part of me that sometimes wonders if I have a *moral obligation* as an aware/enlightened human being to save whatever I can for those who cannot (refuse to?) see what a disastrous future is approaching.

    For those who read this, please consider if you believe you have that responsibility as a human being as well.

    Lastly, for the love of Pete, could we get an update on how Nicole is doing out in Atamai Eco Village? We haven’t heard much from her, let alone about her, lately. And if she’s willing, I would think it a lovely Christmas present to the community if she could revisit her writings on Fractal Adaptive Cycles and take a look at / reflect on Martin Armstrong’s Economic Confidence Model.



    .. there’s probably an argument that all of us ‘enlightened’ TAE’ers should be out there making as much as we can, if only to keep it out of the hands of greedy 1%’ers

    Won’t living according to their ways just make them richer?


    @ Ilargi,

    I don’t believe so. I used to understand the premise you were putting down – that by “playing the game” we enrich the elites – but now I’m not so sure. I’m starting to believe in the concept of cycles, and that the system won’t collapse until it is good and ready to do so – not a moment sooner, no matter how hard I try to change that… and the 1%’ers / elites goose looks to be cooked regardless of whether I’m the most consumption-driven consumer ever or the biggest opt-out-of-the-system hermit to walk the Earth.

    People are being tossed out of the system, slowly but surely, and the youth aren’t even being allowed access to it. If it was in the 1%’ers / elites interest for all of us to be “playing the game” to enrich them, I think we wouldn’t be seeing so many people left by the wayside.

    Following that line of thinking, I would argue it is important for anyone who’s “still in the game” to take as much as they can OUT of the game (i.e. subvert & drain the system from within, bringing it closer towards collapse?) and squirrel it away for a time when mostly everyone gets booted from the playing field. I suspect having access to wealth will go a long way in being converted into social capital and the basic necessities of life.

    And as much as I support the views of TAE in achieving independence / self-sufficiency, I think it’s pretty naive to assume the younger generations can just walk away with nothing and make something of it from which they can survive / sustain themselves. Even for me in my early 30’s having worked a very lucrative career for 10 years, were I to walk away now and try to live off the land I likely wouldn’t be able to survive more than a few years before being sucked dry by the system (and having no liquidity means having no choices).

    The way the youth traditionally seem to survive (and thrive) is by being endowed with the wealth / riches of older generations (typically in exchange for care, support and reverence) as those older generations pass into the twilight. Unfortunately, all I see is older generations consuming everything they can before the big die-off.

    So I don’t know about you, but I’ll make what I can and save it for a rainy day – I’ve got cousins, aunts, uncles, friends, friend’s children, my sister and her dog, etc. whom I fear won’t be ready once collapse hits and will need whatever support the “enlightened” (or perhaps just “prepared”?) few of the world can provide while they rush to catch up and transition from a world of plenty into a world of hurt.


    Jef Jelten

    For over 8 years now I have been advocating sustainability, localization, reducing carbon foot print, etc. All of which contributes to the collapse of the global consumer economy which translates to more poverty, more homeless children, more hunger and starvation not less. I’m done.

    The system we have structured ourselves around can not function sustainably. To try and live outside of that system simply guarantees a more speedy tumble off the economic ladder and into abject poverty and all of the horrors that holds. One can and perhaps should work toward resilience but only if you have steady income.

    Until we demand that the global system be totally redesigned to support sustainability it will never be possible. It would be those with the money and therefore the power who would have to do this. What are the odds?

    The only thing we can say for certain about the future, at least the only future that we have is that it will be expensive and getting more expensive all the time. It is money that decides who will live and who will die and there is nothing darwinian about it.


    I too have given up on trying to improve my community’s resilience, boost the local food system, support local craftspeople, although my new business does just that in a small way, For me at this point it’s just for the fun of it. Since we cannot know how things will play out, just that they will change, best to be flexible. The moral compass itself is no longer reliable. Because everything has unintended consequences. The surround is shifting kaleidoscopically. Be prepared to die, hide, join, run, stay, learn, forget, start over, start over again, and best of all, enjoy the spectacle! It’s quite a show. What can’t be sustained, won’t be. What’s needed to be done will emerge in the circumstances. Meanwhile, scale back if you can and take a lot of naps.


    Making $ while the world burns– sounds familar. Regarding a previous post, “Which generation is most to blame?”– it’s not age or generation thing,imo.

    Today’s 20 year-olds would be equally rapacious, given the chance, IMhO. Just as long as someone with the God-given (apologies to atheists) mysterious gift of persuasive language is there to assure them it’s all cool, plunder for fun and profit.

    You have the gift, Illargi, which is more rare than you might think– and this is what you do with it—
    Compose snappy and poetic ad hominen attacks on a widely-published scientist, Guy McPherson — and you are smart enough to AVOID talking about SCIENCE). That’s really the genius of you. Just trash talk, just insults directed at his person, not his ideas.

    If you haven’t seen it yet, go see what Illargi recently said about Guy McPherson.

    I gotta ask, Illargi–is this a “woman scorned” thing? I mean jeez you were mean as hell, and science-free to boot.

    Here’s my synopsis of Ilargi’s personal attack–“Hey., McPherson’s an asshole, so let’s keep raping and plundering the earth, and not bum ourselves out.” Feelgood stuff!

    Don’t bother replying to me, Illargi followers. If I was mean, I’d make fun of her name. But I won’t. And I won’t be back to give her clicks or the money she is requesting from you.

    Just please ask your Dear Leader Illargi to compose a point-by-point refutation of McPherson’s 34 feedback loops, and stick to the science. She can’t, so she won’t. Watch for the deafening silence.

    That’s silence– not science!! Definitely not science! McPherson hosts the Nature Bats Last website, if you don’t already know.

    I say she can’t refute even 10 of them without using his name, or the pronouns “he” or “him,” or any other clever variations on personal insults. Just ask her and see.
    She will convince it’s all good- so, it’s all good!!! And McPherson is an asshole, that is the main point. The only point actually.

    I hope you make a lot of money!

Viewing 19 posts - 1 through 19 (of 19 total)
  • You must be logged in to reply to this topic.