I want to start with this.
It's a comment I heard on your podcast, The Acid Capitalist, about a month or so
ago, and you had an investor on the used a line that I've heard a million times.
We've all heard it a million times. I'm long equities because over the five
year period, usually equities provide me with a positive return.
And you question that. And I think we all need to question that
in this environment. What did you say back?
Well, I mean, it's it's, you know, the Warren Buffett line never short America.
And I certainly don't want to go against that.
But also, it's the conceit and the arrogance of a well-formed argument.
It is true. There has never been a 10 year rolling
period where it has not been the right thing to be long.
It doesn't make it right. Moving forward, you know, there has
never been a period where nationwide U.S.
house prices had fallen together until it happened.
And when it happened, it devastated the global financial system.
And today, we're still trapped in the mire of what happened 15 years ago.
So you're saying that a century's worth of market data is not long enough.
You have to take history back a little bit further.
Is that how you think about this? No, no, no.
I mean, this is Asian philosophy. You only free yourself from the shackles
of being a slave to market rhythms. When you recognize the impermanence of
things, things change. Things like the Fed put, things like the
Fed's understanding of money, things like their devotion to done and is
rather spectacular jacket and his recommendation for Apple.
Yeah, things change. Do you think a fence in a policy trap?
I think the Fed is confronted with Fed fog.
I mean, again, I keep asking people, when was the last time we we admired a
step taken by the Fed that we thought, wow.
Yeah, that really has helped my life. Why is the default position to crush the
economy? So the hikes are the wrong call.
I believe the hikes will not result. They're dealing with a political problem
that generated this without a doubt. We have seen an elevation to the tune of
10 percent in general global prices. Right.
And that 10 percent in coming back to zero is the point for me as an elephant
passing through the body of a snake, if you will.
Right. It refers to a supply shock.
There's been. It's gone.
We're looking at Amazon's results. Okay.
Amazon had one hundred head to warehouses full of inventory.
So because they overestimated. And what's what's your headline again?
We're looking at Amazon's worst holiday sales ever.
Okay. And and we've had two consecutive
quarters of GDP decline and the Fed took recession.
What recession? This is a recession is getting bigger
and bigger. And that's the fog you've picked up on
it. The mismatch between demand and
capacity. And it was a clear mismatch in 2020,
2021. But it was different.
We didn't have the capacity. We just had tons of demand as it flipped
already is that we're seeing major signs of that that's flipped already.
And what does that speak to when it comes to the inflation code?
It's flipped. I mean, sure.
Show me the evidence in the commodity sector in terms of the higher prices.
Show me the evidence, actually. I'll show you the evidence in terms of
the households reaction. There is a default reaction whereby I
think if the economy is like one giant wall, it okay.
And the VIX, the expenditure going out, we know is up 10 percent.
And general prices show as if you maintain your average consumption of
goods and services, you need 10 percent more money coming into the wallet.
Okay. If I don't see you coming in, this is
back to the Friedman notion that inflation is always and everywhere a
monetary phenomenon. You need a spigot of 10 percent coming
in to accommodate. If it's not coming in, you're cutting
back. Where are you cutting back on
discretionary spending? Let's look at every discretionary stock
in the market. Where is it?
Is on his ass. So if we start a hedge fund tomorrow and
we put together an investment committee, I'd have Mohamed El-Erian is the chair
to keep us well behaved for the whole meeting.
I would have the likes of Druckenmiller that the ingenuity of Druckenmiller.
I'd ask the conviction of a 90 Soros. I'd have to discipline if, say, Michael
Platt over at Blue Cross, and I'd have you at the end of the table throwing
grenades. Sam, what if you could say what if right
now what is the big what if you have as you need?
The Joel Weber is the unintended consequences.
And I keep looking with a wary eye at our Chinese causes in France and I look
at their currency. You've got to remember that they were
loathe to devalue back in 1994 with after tonight.
Whereas the currency today, it's like knocking on seven and a half.
Right. It's having it like all currencies views
of the dollar is having. It's weakest, if not at its weakest year
to date performance. Heaven forbid a trades nine because
that's where the yen is going. This is it.
It's an Aesop fable. Now, why did why did the scorpion sting
the frog halfway over? It's a bit like why did Taiwan in 1998
devalue? There was no economic rationale.
But when all the American tourists are devaluing, boom, I can't give it up that
God forbid that happens. That would be the most deflationary item
to ever hit the global monetary system. Is that something you'd be willing to
position for right now? Yes.
What would that look like? That's just that.
That's a short position in the currency. How would you express it elsewhere?
Well, you know, elsewhere with restraint that I keep saying you don't always have
to be invested in markets. People give me a safe, give me a
riskless, asking why. You know, I've lived long enough.
I lived through 2008 and the safe assets, supposedly gold went from near
2000 to near 500 because we got liquidation.
Okay. So for me just now, listen.
It used to be you mentioned 2018 19. The Fed was raising rates.
The S&P went down 20 percent. The Fed rate.
I changed my mind. Yeah, well we had twenty eight.
Twenty five. The Fed boring.
No, not this time. So maybe it's 30, maybe it's 35.
Okay. My comfort level for trying to own any
acid. I rise when we pass 35 or 40.
Something interesting. A moment ago I've said many interesting
things for the one with the gold and perform the asset.
It was meant. Perform.
Didn't perform. Is that treasuries right now?
Or do you think the surprises did in our future?
This is the killing zone for treasuries presently.
Just chart wise like this is where Lucy and either the treasury bond bull market
is over and so years will continue or this is the point where we're just
recirculating ownership. But in terms of let's talk gold, let's
talk treasuries. Real rates, if we look at five year
tips, are close on 2 percent. Our system doesn't work and gold doesn't
work when rates are poised. Real rates of positive thinking that
we've got debt to GDP circa for X. Okay.
If real rates are 2, you're effectively transferring 8 percent of GDP from the
debtor class, from the household sector to the creditors, and the creditors have
no idea how to spend money. That's regressive, right?
We need financial repression. It's just simply a function of the mass
of four times GDP. Did you ever think we'd see an 11 handle
on German CPI? Well, we're talking about going back to
the 50s. Let's keep going back.
Let's go back to 1948 when U.S. CPI was running at 20 percent.
And yet we don't talk about the hyperinflation of the late 1940s.
Again, why? Because money?
Because inflation is a monetary phenomenon, right?
It requires like funky. We are getting funky in the studio is a
blue. Right, but it requires funky Banksy.
Yeah. I want to land.
Do you see that in Europe? I don't see that in Europe.
Right. I see an elevation in the energy.
Right. And I see, believe me.
Right. The blind this boss of the central
banking community is the ECB. Yeah, right.
The guys who raise rates in the summer of 2008 and again in 2011 and 2011.
And what if they just doubled rates yesterday?
Hallelujah. Right.
I'm thinking the other way. You think the mistake is what?
I think the mistake is. They don't understand that money,
monetary conditions that they talk about financial conditions, monetary
conditions, OK. Have superseded their ability to to see
the entire picture. We're talking about the repo market, the
euro dollar market. We're talking about where monetary
creation is no longer taking place within the sovereignty of their around.
They don't see it and things are happening.
The collateral is being called NIKKEI Yamani is actually being destroyed.
The euro dollar system just no is destroying its contracting money is
contracting and is pushing asset prices down.
And this is a reflective system, reflexive system.
That's what they don't see. That will be the solution moving
forward. Guy, jump in here.
Well, I'm curious, Hugh, central bank independence.
It's a very new phenomenon. And I wonder whether or not we're about
to see potentially that being tested as well.
Georgia Maloney in Italy is already questioning the rates at which the ECB
is raising rates. She, as you says, is they talk about the
fact that this is a this is a supply side problem that we've got here.
It's not a demand issue that the eurozone is facing.
You've got the French president starting to talk.
As well, others are likely to follow. Helping a clash, do you think we could
see between politicians and central bankers and who do you think will win
that fight? Well, I would extend that outside the
European region to where you are in the UK.
I think you just saw a Kabul of the Bank of England chief and
the jokers at the IMF. Forgive me about, you know,
ousting the British prime minister for having the audacity to suggest a fiscal
expansion in a depression. UK prices.
The UK stock index is below where it was when we entered this new century.
Right. It's it's in it.
It's not growing. And what is the answer to raise interest
rates? I mean, what planet are these people
want? So what you think a central bank should
have done? What should Governor Bailey have done
accommodates it, be accused of fiscal dominance?
What do you think he should have done? Well, I said a budget.
Let's consider what he did. Okay.
So, yeah, we're doing quantitative tightening, which itself is just
baloney. Right.
But, you know, we're raising rates and we're restricting this supposed money
growth. Right.
And what did you say you then Tom Mackenzie?
You know, I said we were restricting much.
Now we're doing QE again. All right.
So there he he was the one that pivoted.
Right. And then what else was happening?
It revealed again that the repo man revealed himself the pension funds, who
again were deemed to be the smart people, markets disciplining the British
government. Well, these disciplinarians were
leveraged up to the eyeballs and they were getting margin calls.
The system is pulling itself apart. What I believe sanity will prevail when
a central bank says I'm cutting rates. We're nowhere near that kind of level.
But what we you know, you talk about a market pushing the central banks to make
a move, to push for a pivot. Where is that level?
Where's that threshold? We all agree one exists.
What do you think it is? Well, again, it's when asset prices are
down considerably more than they are today.
Right. It's easy.
Right. Profound economic recessions are brought
on when we lose when we vaporize 100 percent asset to GDP ratio.
As we started this cycle, it's seven were fast approaching five.
We don't even have a good mark on private equity.
Right. So we've lost 200 percent of GDP
already. That was fictitious oil wealth.
It wasn't fraudulent. It just overstated things.
All right. But
that was NASDAQ crash in 1999. 2000.
That was 2008. Yes.
Oh, wait. That's all happening.
No. But it's happening outside the you know,
the threshold of central banks is like that.
And you've got to expand your vision. And when you're out here, you're seeing
dead people. So if we've got about 60 seconds left, I
have, you know, actually st dead people. Let's finish here.
If I could summarise this conversation we've had, you're pushing back quite
aggressively against recency bias. And we're all sort of blinded by what's
happened recently. Is that the ultimate gist of what you're
trying to communicate? Here it is.
And I think we have to recognise that all of the fascination we have, we have
to go back 120 years to Germany and the buying MMR and the inflation.
Why has it not happened here? Because we have fire bricks.
We have the outsize position of publicly traded debt markets and the reprice
immediately and they tighten policy, not the Federal Reserve.
We have discretionary spending where people pull back.
That's what's happening. And those two factors together usually
mean that the inflation fear remains a fear.
And as we move forward, metaphorically, I'm seeing dead people.
Okay. And the Fed seems to be that's what the
Fed's doing. It has to trash our system.
Once we're all aware of how bad it really is.
Thank you, Amazon, for again guiding us that way.
Then the Fed will pick it 10 seconds to make a trade.
Literally 10 seconds if you could make one right now.
What is it? I when I look at collateral, I'm
beginning again. The the Italian B.T.
piece spreads versus burns, right? Yeah.
Only 15 percent of boons are in market hands.
Okay. And the Italian is being used as
collateral, as if it was a boon. Italy is not Germany.
