This week I speak with Erik Townsend, entrepreneur, hedge fund manager, and co-founder of Macro Voices as he joined me on the Capitalist Exploits Big Question Podcast for a discussion where we sweep through the gamut of financial issues plaguing the global landscape.
This is a conversation you won’t want to miss. We covered a lot, beginning with Erik explaining how – after selling his software company in the ‘90s and joining the 1% – he was robbed blind by “the world’s most prestigious investment bank” who managed to lie, cheat, and steal from him, obliterating about half his net worth. This is a man after my own heart who chose to kick the parasites to the curb, educate himself, and he now successfully manages his own money full time.
We discussed where we’re at in the global commodity cycle and he highlights the soft commodities, an area my friend Raoul Pal is very bullish on (you can listen to Raoul and me here):
“Grain prices are half of what they were a couple of years ago….”
“I think that by the end of 2016 we’ll have seen another low around the inventory and refinery maintenance season, that will probably be the final low and we’ll start looking for recovery in oil prices.”
While picking tops and bottoms is harder than picking a broken nose, Erik had this to say on the timing of the commodity cycle:
“I definitely think there is a buying opportunity in commodities coming up sometime in the next year or two.”
Shifting to Overvalued Real Estate
Shifting gears and discussing Asia, Erik explains why Hong Kong is likely to increasingly become less and less a port of safety for Chinese money. Key to this is the 50-year treaty currently protecting Hong Kong, allowing it to maintain its independence and have its own democratic government. This treaty expires in 2047.
Erik points out that hot Chinese money is going to stop using Hong Kong real estate as a “safe” parking place for dirty money:
“The problem is almost nobody believes that China is going to honour that commitment and allow Hong Kong to maintain its independence till 2047.”
Regular readers will recall my top candidates for a real estate bust. I find it fascinating that the market least expected to bust (at least by readers) is also the most overvalued.
Sovereign Bond Markets
Moving on from overvalued real estate, Erik and I dive into the elephant in the room: sovereign bond markets. We discuss a potential catalyst that I’ve been thinking a lot about which could actually create inflation.
Tied closely to the sovereign bond markets is what lies in store for the US in terms of both fiscal and monetary policy. One thing which we both agreed on was the likelihood of fiscal stimulus. Both Trump and Hillary are making this part of their campaign message: infrastructure spending.
“We’ll get a fund. We’ll make a phenomenal deal with the low-interest rates,” he said. Who would provide the money? “People, investors. People would put money into the fund. The citizens would put money into the fund,” he said, adding that he’d use “infrastructure bonds from the country, from the United States.”
Of course, Trump isn’t the only one promising free lollies and grand plans:
“We are going to have an investment in infrastructure—our roads, our bridges, our tunnels, our ports, our airports,” Mrs. Clinton said Thursday in Las Vegas. “But it’s not only what you can see. It’s also under the ground—the water systems, the sewer systems and, yes, we need a new modern electric grid.”
Of course, spending on infrastructure projects, even if it is just digging holes and filling them up again, isn’t entirely free.
Digging a bit deeper into US politics and increasing political tensions, here’s Erik’s take on Hillary Clinton:
“…and you look at Hillary Clinton and her rhetoric towards Russia, and how Russia has to pay a price…her rhetoric is basically trying to pick a fight and start a war with a nuclear superpower. This is the beginning of something very very bad…”
And on governments in general where Erik believes we’re headed for war:
“I think something really horrible is coming in our lifetimes, but it could be another decade still before the governments screw things up badly enough that it gets to the point where a global war is the only way to take attention off of how badly governments have screwed up, but I think it’s coming and I hope that it’s farther out than I fear it might be.”
Insights to Global Markets
As terrifying as the visions of Hillary’s spasming frame hovering over the red button may be, we’ve also got the financial “elites” to contend with. Men such as Paul Krugman who I’m sure was hiding behind the sofa when they passed out brains. A few weeks ago, when discussing the demographic shifts altering global markets, I touched on war as a solution to “stimulating” the economy:
“Of course there is the Krugmanesque route which involves fighting off some aliens or more likely starting a war. This suggestion in the realm of stupid runs three grades: stupid, unbelievably stupid, and war.”
Clearly Erik is on the same page and his insights are well worth your time. Listen to the full conversation with Erik Townsend here:
Direct download link (right-click and choose “Save As”)
“There is no act of desperation central bankers won’t stoop to before it’s over.” — Erik Townsend