Hugh Hendry is bullish on Government Bonds, the long-term kind. In particular, he likes the German 30-year Bunds, which currently yield 4%.
"We are going through the biggest deflationary recession in 50, 60, 70 years. The price [of the Bunds] is wrong.
Hendry is long the US dollar, the case being that as long as the economy is delevering, assets being sold to retire debt, that the end result in the present is that the economy is long the dollar, hence the hard to explain strong dollar.
Hendry goes on to say that he is short sovereign credit, in particular, China, Korea, Mexico, Hungary.
On the subject of US solvency and dollar strength Hendry points out that the US entered this crisis with public debt levels at of 40% of GDP. Japan entered entered its crisis in 1990-91 with similar levels, and today Japan's public debt levels are 200% of GDP; the remarkable feature here is the strength of Japan's currency. This 4-fold expansion of public debt may not be the case in the US, but Hendry points out that we've got a long time to worry about the US, and whether or not it may have a solvency problem down the road. On the basis of the delevering World economy, Hendry is long the US dollar.
As for gold, Hendry makes himself clear that "too many people today, can articulate its very valid attractions; there are too many people owning gold today, you can't buy coins today unless you pay premium prices for them.
"Making money is a devastatingly hard business. If I own gold and I open up the paper in the morning and the price of gold is telling me how smart I am to own gold, that is not the recipe for making money. You want to pick up the paper, and be owning government bonds, and every expert is telling you you're wrong. It feels lonely, it feels horrible! That is how you make money."
One of the most refreshing aspects of Hendry's willingness to share his ideas openly, is that even he recognizes that most folks don't want to agree with him. If you listen carefully, Hendry is not interested in being a doomsayer, he is interested in the opportunities presented by the current market conditions.
This interview is a great lesson on global credit and equity markets and economics, as Hendry eloquently shares his insight.
By the way, Hendry's Eclectica Fund has been a star performer during the last year with returns of around 40%, most of which has come from investments in bonds. Hendry even temporarily violated the mandate of one of his long-only equity funds by investing in a majority of government bonds and then subsequently went about the process of changing the investment policy to include the allowance for bonds.
Check out global government bond funds. They are reflection of Hendry's primary argument. If Hendry is right, we are in the midst of a global bond bull market, as a result of the massive amounts of delevering that is underway, in the debt ridden G6 world.
