Hugh Hendry in Barron's

The Barron's interview was with Hugh Hendry from Eclectica and as it always is with Hugh, it was very interesting even if part of it may have been a conversation I could not hear (paraphrase of one of my favorite quotes from the show Deadwood).

A big focus was on his reasons for buying credit defaults swaps on Japanese companies, mostly Japanese steel companies based on how the article read. Admittedly the entire thesis was tough for me to follow but basically Japanese banks are trying to shake the money tree by selling CDS too cheaply versus what the actual risks are. This is a case of misusing leverage, he believes, and it will blow up spectacularly for the sellers while benefiting the buyers.

A couple of things stuck out as points to try to learn from or challenge his thought process. As far as an implosion in equity prices, the Nikkei is down about 80% in 23 years. That type of multidecade run prices in a lot of doom and that somehow new news could cause that trajectory to slope downward at a steeper angle seems unlikely. It could happen of course but down 80% in 23 years is down 80% in 23 years.

The other point is he thinks the banks selling the CDS are not managing their risks properly. I don't doubt that for a second but if the sellers of CDS are mispricing the risk they are taking then how will they pay out on the contracts when Hugh turns out to be right (giving him the benefit of the doubt)?

He also said he is bullish of some equity exposure and appears to believe in the Malthusian theme of inadequate resources to feed the world.

On a personal note, Joellyn and I are in Queenstown, NZ. We flew here overnight Saturday, landing on Monday morning NZ time. The first picture is out the window of the plane we took from Auckland to Queenstown and the second picture is on our approach to Queenstown. For any clients reading this, work continues as I have my laptop (thrilled the adapter is working properly and it did not blow up) and am in constant contact via email for anything that might come up--this also goes for the fire department too.