Tuesday, April 28, 2009

The Latest Hugh Hendry; and Jim Rogers in Time

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First, let me start off with a short interview with Jim Rogers in Time magazine (follow the link to get the whole thing) I just grabbed these two blurbs since much of what was covered, we've already discussed - as always Rogers has a lot longer term view than today's average investor

(1) The market is up from its lows and the most recent unemployment numbers are slightly better; what do you say to people who say, 'Well, we're nearing bottom on this'?

I think we've seen a bottom. I don't think we've seen the bottom. If America's determining its policy on whether the stock market is up for a month, America's in worse shape than I'd realized. We could have a rally for who knows, six months, a year, we could have a rally for a while after having had the kind of collapse we did. In the '30s the stock market rallied frequently. But in the end it was still the Great Depression.

(2) Do you think this crisis is just going to solidify the advantages of China and these other Asian and Southeast Asian economies?

Well, again, throughout history, the center of the world has shifted to where the capital is, where the assets are. You don't see any period in history where things are shifting to the debtors, and America's the largest debtor nation in the history of the world. Unless something's different this time, unless the world's changed very very dramatically, the center of the influence, the center of power, the center of the earth, the center of the globe, is going to be shifting towards Asia, because that's where all the money is. Have you ever heard of anybody saying, "Let's go to where all of the debtors are"? It just doesn't happen that way.

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Second - let me repeat I am amazed how CNBC Europe (and Asia) appear to spin in completely different axis that BubbleVision aka CNBC America. In this opening salvo, the anchor reads an email to Hugh Hendry - look guy, anyone who followed your advice of late is down 30-40% based on what you recommended when we last had you on.

Do we EVER hear that on US version? No, we hear gleeful backslapping and chortling... so you've been wrong 9 of the past 11 times you appeared but (breathlessly) we await your next pearls of wisdom. (although they never state the part about being wrong 9 of the last 11 times) And whatever you say, we'll pass it along to our viewers with confidence and rigor! Because you're a pundit, and we celebrate you. Buy stocks.

Just a short 3 minute video here with Hendry (p.s. his response to the email is CLASSIC Hendry!); again I don't necessarily agree with all he says (in fact sternly disagree with some of it) but I always like to hear viewpoints of bright minds. [Apr 16: Hugh Hendry, Citiwire Interview] [Mar 20: Hugh Hendry of Eclectica Asset Management is Wickedly Good] I love his comment about the GDP accounting done by Madoff. We showed in 2008 how the US "keepers of data" were "adjusting" things because we could not be allowed to have a "recession" before the election. For example one quarter in 2008 (I believe 2nd?) as oil was $140, food prices were flying, every commodity was at generational high, along with the normal inputs jumping - we had one government agency that was reporting 4%ish inflation WHILE the "keepers of GDP" said inflation was 1%ish and lo and behold - we added 3% to GDP. Magic!

Almost every government data report has now been massaged over the years, as we showed multiple times in 2007 and 2008 (I got tired of pointing it out, since as long as we all belief in myth we can trade off of it). Bottom line - you cannot handle the truth, so here are the "adjusted" numbers which don't compare apples to apples to what we used to tell you in the 60s, 70s, and 80s. Not much different than what we do with earnings nowadays - just exclude all those 1x expenses (that happen every quarter) and away we go. We're all Madoffs in our own way.

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The recent rise in stocks and talk about green shoots in the markets are optimistic assumptions, as the world downturn "still has a way to run," Hugh Hendry, Chief Investment Officer at Eclectica, told CNBC Tuesday.

World gross domestic product looks overestimated, because global consumption has been based on debt, and this cannot continue, Hendry told "Squawk Box Europe."

"In the last five weeks we had a rally in risk. Big deal," he said.

"I am fearful of the surplus countries, like China and Germany. I think GDP has been overstated," Hendry added.

"My notion was, you had Bernie Madoff doing US GDP accounting." China "built capacity to serve a world that doesn't exist. We're drowning in capacity. The idea to propose we build more… that ain't a remedy," he explained.

Although companies' results beat forecasts, this is mainly because they marked their expectations too low, but their outlook is grim, according to Hendry.

"I believe the downturn in the global economy still has a way to run. We've only been given evidence of further deterioration," he said.

The rise in bond yields shows that the yield curve is flattening, pointing to more economic weakness ahead. What it reveals is that it's terrifying. This rise in bond yields shows… the private sector is countering the Fed and is tightening policy," Hendry said.

During the Great Depression, there had been rallies in the stock market, but stocks generally fell, Hendry reminded, explaining his bearish stance on stocks. He added that nobody can predict where the bottom was for the stock market.

"Monkeys spend all their time picking bottoms. I refuse to pick bottoms as I don't live in trees," he said.

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Two other commentaries (no video) here and here

  • "As a society, we have taken debt… to almost four times greater than the economy. That's unprecedented. And it's a turning point," Hendry said. "Governments around the world want some inflation, and they are targeting inflation. It's one thing to target it and another to achieve it. Who wants to take on debt today?" Because of this, the economy will continue to contract and commodities such as oil are not a good bet either, according to Hendry.
  • Bonds are not a good buy for the summer, as they are usually an investment for the second half of the year, and investors should be "patient and scared" and, at the end of debt deflation, may get "fantastic values".
  • Gold has behaved as a risk-free asset, but Hendry said he hopes for a correction in the price of gold to around $600 to $700 per ounce, from the current level of $898, to start buying. "I'm not saying it will happen, but stranger things have happened," he said. "Gold investors have had it easy. I expect gold to get a bit more uncomfortable for the people who hold it in the short term." "The intellectual case for gold is very strong. Governments are printing money, but only God prints gold and that takes billions of years."
The 2nd piece is interesting and thought provoking...
  • "When I think of QE I think about the quantitative theory of insanity. This is an idea from the British writer Will Self who says there is a fixed portion of sanity in the world at any one time. So as one group becomes more sane, another group becomes more insane. In our case, as the Fed and the BOE have become more sane by printing money the so called gurus like Soros and Buffett suffer a deficit of sanity. They are saying the actions of these central banks will lead to inflation. I contest that.
  • The central banks are replacing the dollars and pounds destroyed in unprecedented amounts by the recession. I am a friend of the central banks – they understand the history of the 1930s and are trying to prevent us returning there. This destruction of dollars and pounds is creating a scarcity of money. We are losing dollars and pounds from the system.
  • Perhaps the real question is whether the central banks should be even more aggressive. The Fed is creating $2 trillion, but maybe they should be creating $10 trillion. I don’t think 2 is the right number. Based on the Taylor rule on employment and inflation, the Fed's own forecasters think interest rates should be at minus 5. That would imply a level of money creation at $10 trillion.
  • The private sector has got it wrong. The private sector is refusing to spend and that is going to have the effect of making money even more scarce. That will push us closer to depression. That is why I say the central banks are our friends; they are trying to help the economy recover while the likes of Buffett are arguing against these actions. I think he is wrong."

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