Through the looking glass, the world looks the same but different.
To get there, read Nassim Nicholas Taleb’s book Fooled by Randomness, and it becomes quite impossible to see the financial industry in the same way again.
So it is always interesting to meet someone that gets it, that has drunk the kool aid, taken the red pill and gone to other side of the looking glass, particularly if they control half a billion pounds of money.
Such a person is Hugh Hendry, head of Eclectica Asset Management. He came to speak at Reuters yesterday, and it was clear from the outset that there was something different about him compared with other industry figures.
The reading matter laid out before him was enough to suggest something unusual was likely: Dr Seuss’ Oh The Places You Will Go, and Will Self’s The Quantity Theory of Insanity.
And Hendry did not disappoint. Parts of the hedge fund industry were evil, he claimed, while his investments in agriculture were just to show people that he wasn't completely pessimistic. Meanwhile, difficult questions about the future were palmed off by references to his astrologer.
The intellectual substance to his perspective is not just Taleb, but the economist Irving Fisher.
(The Economist ran a useful briefing on Fisher last month if you haven’t heard of him.
"As parallels to the 1930s multiply, Fisher is relevant again. As it was then, the United States is now awash in debt. No matter that it is mostly “inside” or “internal” debt—owed by Americans to other Americans. As the underlying collateral declines in value and incomes shrink, the real burden of debt rises. Debts go bad, weakening banks, forcing asset sales and driving prices down further. Fisher showed how such a spiral could turn mere busts into depressions.")
Hendry is often on the TV nowadays, possibly because there is little else for him to do at the moment – almost all of his investments are in safe-as-can-be government bonds, and he claims he will not start buying for another 18 months or so. Here’s one TV performance to keep you going, while here’s another.
Personally, I think his comparisons between Japan in the 1990s and the US in the 1930s are interesting but possibly overplayed. History rhymes rather than repeats.
American consumers are more optimistic and less rational than those in Japan, while the financial markets today form a profound and powerful industry reaching throughout society, in a way they did not in the 1930s. A few broken windows aside, the interests of finance are more likely to again be embraced by Anglo-Saxon politicians and publics rather than entirely rejected, as Hendry’s analysis implies.
But I am very likely to be wrong, and he right, or maybe both of us are wrong. As such, almost all of my assets are in risk free investments, while I have a small investment in bank shares.
Be that as it may, it was a refreshing change to hear someone speak who is not constrained by industry expectations, who thinks for himself and who gets that the financial industry demands (needs!) more rationality than could ever be known by any set of human institutions.
3 days ago