Michael Covel interviews Ben Hunt. Ben is the Chief Risk Officer at Salient Partners and the author of “Epsilon Theory.” This is his second time on Trend Following Radio. He has an interesting way of looking at capital markets–through the lens of game theory.
Michael and Ben start the podcast off talking about buy and hold and why the strategy does so poorly. Ben moves on to break apart monetary policy and domestic politics and how they are intimately intertwined. When you have a world of massive debt, like we do today, then deleveraging naturally should take place. Instead, in today’s world you have the ownership of that debt shifted from private entities taking responsibility of it, to the government.
Central bank policies are always a direct reflection of the politics that are going on in the big four economies that drive the world; U.S., China, Europe, and Japan. The domestic political interactions going on in those countries are what you see in the world’s economics. This leads to cooperation during economic crashes, for example, during the great recession. Countries inflate their economy to get out of economic crashes. Going to a lower or negative interest rate is a perfect way to devalue a countries currency. Right now, we are moving from a positive sum on trade, to a zero sum on trade and Ben says that the outcome is very predictable. He says that we have seen this movie before and it isn’t hard to see how it is going to play out.
Michael brings up Ray Dalio and asks the question, “Why are all these companies putting their money in one place, with one company and with the same model?” Ben notes Ray Dalio’s massive amount of money that he manages and what Bridgewater (his company) has created is an easy process that is implemented in an automated and quantitative system. The whole notion of having a rigorous process and managing clients money within that process is Bridgewater and Dalio’s most widely spread influence. Bottom line, instead of trying to predict what is going to happen we need to try and react quickly to circumstances.
In this episode of Trend Following Radio:
What drives the value of currency?
Economics in recessions
Policy controlled markets
Expectations of the public markets
“Markets are too important to be left to investors.” – Ben Hunt
“It goes back to what I was saying about the overwhelming debt that sloshes around in the world and there are only three ways to get out of that: You can grow your way out, you can inflate your way out or you can assign losses and try to reset.” – Ben Hunt
Today on Trend Following Radio Michael Covel interviews Jim Rogers. Jim is a famed American investor based in Singapore. He was co-founder of the Quantum Fund, and has authored numerous books. Today’s conversation is geared toward the central banking system and the direction Michael and Jim think the world’s economy is headed.
Michael starts the podcast off talking about negative interest rates and if that is a possibility in the U.S. Jim brings up a study published in 2007 that said, “We have the Federal Reserve, we have 1,000 of the most brilliant economists in the world how can we be wrong? How can people say that we are wrong?” Jim says that for the last 30 years the Fed has done just that. They have gotten just about everything wrong. Janet Yellen has been getting everything wrong since before she was even head of the Fed. She blames her blunders on the market being wrong or the public being wrong. According to Jim, every head of the Fed has been an academic and political hack.
Michael posits, “Everyone should be able to imagine another stock crash, we have had enough of them.” Jim says that the debt is staggering right now so when we have a crash it is going to be utter chaos. When we have extreme economic problems a war usually follows as well as someone coming in on a white horse to save the day. That white horse person will also cause more debt and make things even worse. This is the first time in history that government is actually out to destroy the people who have saved and set away for retirement. The middle and saving class has been destroyed before, but that was because of war or inflation. Jim says that it is mind boggling that the government’s solution to clearing up debt is to create more debt.
Next, Michael asks, “How do you see China right now?” Jim says that when they had their big market crash they chose to invest in the future with money they had saved. In America, we did the opposite. We chose to bail out the bureaucrats and make sure the rich didn’t go poor. The European and Japanese central banks have come out saying that they will practice unlimited QE funding. They will print unlimited amounts of money to solve their economic problems. Most do not question this because most people have no idea who or want the central bank is.
Lastly, Michael asks Jim what the best way is to prepare for potential problems that may unfold in the future. Jim says the first thing is to not listen to the news or what you may read on the internet. Stay with what you know and if you don’t think you know something, do nothing..
In this episode of Trend Following Radio:
Negative interest rates
Central banking systems
The impact of unintended consequences
Preparing for the future
“For the last 30 years look at who we have had down there [as the head of the Federal Reserve]. They have all been academic and political hacks.” – Jim Rogers