Hugh Hendry on the "Terrifying" Yen Move, and Risk of "Mad Max" Deflation

Joe Weisenthal (0:03)

Bloomberg Audio Studios.

Tracy Alloway (0:05)

Podcasts, radio, news.

Joe Weisenthal (0:20)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:25)

And I'm Tracy Alloway.

Joe Weisenthal (0:27)

Tracy, you know what's sort of giving me a little bit of anxiety these days? Just many things.

Tracy Alloway (0:32)

I feel like that's a dangerous question to ask your coworker, but go on.

Joe Weisenthal (0:36)

I mean, it does seem, right, it could be anything, it's not personal.

It does seem like across many industries, EVs, et cetera, like Chinese firms, either because they're doing very well organizationally, technologically or whatever, or cost competitively, are really killing it in a lot of industries. And as an American who wants a thriving US economy, watching, say, on the same day, the day after Boeing is experiencing some new investigation, and then the next day seeing some headline about Comac is expanding its factories, it's like, oh, what's going on here?

Tracy Alloway (1:13)

Yeah, I know what you mean. I feel like EVs are sort of a microcosm for, I guess, a lot of anxiety over the Chinese economy. So first of all, the idea that China is sort of gonna leapfrog America in one way or another in terms of technology, renewable technology, as we've sort of seen in solar panels, but also the idea that to some extent, China has a lot of policy levers to pull in a way that the US sometimes struggles with. So President Xi Jinping can go out and say, we want China to make massive investments in things like EVs or in things like semiconductors. And to some extent, the entire economy sort of turns that way and starts doing it.

Joe Weisenthal (1:55)

And just to be clear, I think it's good that more countries around the world are getting richer and more competitive and able to... So I don't see the world as some sort of zero sum type thing, but if the US is embarking on this sort of renewed industrialization push, if we think it's valuable, if we think it's important that certain types of batteries and cars, et cetera, are manufactured here, which we seem to have prioritized, also chips, then the question is like, well, will any of this be competitive globally, cost competitive, effective, similar technology to what competitors overseas are doing?

Tracy Alloway (2:33)

But also, just to ease your anxiety a little bit, because that's what I'm here for, there are a lot of question marks around the direction of the Chinese economy at the moment. There's speculation over a UN devaluation. Interest rates are already pretty low. They're struggling to boost economic growth. So you have these sort of twin things happening at the same time.

Joe Weisenthal (2:52)

China unambiguously has its host of issues. That being said, I do think that for as long as I've been paying attention to markets, economics, stuff like that, one of the overriding questions is like, well, when is the crash? When is the financial crash? And it hasn't really happened. Like there's been some issues now, and obviously they sort of on purpose to some extent pricked the real estate bubble, but by and large, some sort of like big Chinese disaster, the likes of which many people have been expecting for a long time have not materialized.

Tracy Alloway (3:20)

I think this goes back to the command economy policy lever idea. And if you have those types of levers, you can kind of pull them and buy yourself time. And that's what we've seen over and over again. You do have these disasters that happen in the Chinese economy, like the three red lines proposition for real estate that led to a housing crash. But on the other hand, you have sort of measures that can offset some of that and I guess extend and pretend for a while.

Joe Weisenthal (3:47)

Totally. Well, I am really excited about our guest. We've had him on the show once and before, although now he's in the studio with us, which is always a lot more fun.

Someone who has been covering this story for years, I first discovered him probably in 2008 or 2009, watching his YouTube videos where he was in China, looking at these gigantic, I think the term at the time was called ghost cities where there are tons of skyscrapers and apartments. And at the time, no one was ever living in them. And it sort of raised all these questions about misallocation, all these questions.

Anyway, we are speaking to the Acid Capitalist himself, former hedge fund manager, now all around cool guy who lives in St. Bart's, but he graced us with his presence here in New York City. Hugh Hendry, thank you so much for coming back on Odd Lots.