10x ʀɪᴄʜᴇʀ ᴏʀ ᴅᴇᴀᴅ ☠️

A market story is only as good as the portfolio that can survive it. Hugh Hendry sat down in London to explore risk from first principles. Why playful, curious, even mischievous thinking can beat credentialed certainty, and how to build an allocation that thrives whether AI delivers a productivity super‑cycle or ushers in painful dislocation. The conversation tugs at the great plaster on the body politic : consumer sentiment scraping historic lows while prosperity narratives soar.

Hugh breaks the problem into a simple, repeatable framework: four macro quadrants: dollar cash serving both as collateral and yield, broad tech equities for growth, long‑duration bonds for rare mean reversion hedge, and alternatives, including gold, private assets, property, and crypto for convexity. 

He explains how the bond market’s shock: long dated Treasuries halving as banks shorted futures to hedge mortgage books in the 2020-22 era, created a once‑in‑a‑generation possible profit setup if rates drop and American households refinance en masse. 

A path where a misread neutral Fed policy rate and a frozen refinancing market could flip the script, reopen housing, and make out‑of‑consensus rate bets extraordinarily lucrative. The lesson isn’t to idolise a forecast; it’s to price the consequences and size for survival and profit.

He also gets specific on price compression: why multi‑decade ceilings matter more than pundit stories, how the Nasdaq’s breakout unlocked a fivefold run, and where similar patterns may be brewing in silver and Japan. If you’ve wondered how to stay invested without becoming a hostage to the latest narrative, this is a clear playbook: pre‑commit your belief, right‑size your risk, and use the market’s own footprints to time your aggression.

If this conversation sharpened your thinking, follow the show, share it with a friend who obsesses over macro, and leave a quick review to help more curious investors find us.

Chapters

• 0:00 Setting The Stage With Hugh Hendry
• 1:01 Defining Acid Capitalism
• 2:47 Pyramids, Conceit, And Modernity
• 6:15 AI’s Promise: Tenfold Richer Or Ruin
• 9:13 Sentiment Lows And Bubble Psychology
• 12:17 World‑Class Losing And Sizing Risk
• 15:10 The Four Quadrants Of Macro
• 18:05 Bonds Halved And Mean Reversion
• 21:00 Zero Rates, Convex Bets, And Optionality
• 24:10 Treasuries, Mortgages, And Forced Hedging
• 27:15 Refinancing Freeze And A Path To Zero
• 30:05 Neutral Rate Debates And Migration Shocks
• 33:05 Price Compressions And Breakouts

Transcript

SPEAKER_02: 0:00

Good afternoon. Welcome to this recording of a different perspective podcast in front of the audience at Mellow The Bend. I'm Luxal, and with me today I have the legendary ex-hedge fund manager, the market mystic, the acid capitalist Hugh Hendrick. All the way from St. Barthes in the Caribbean. You are good. I would emphasize X. I thought it'd be good to start with a bit of a conversation here about macro and markets. And then we are very keen for audio ex participation. So we've got Hugh here for 40 minutes. So very happy to take any questions or questions. And the more interactive we can make it, I think the more doable it'll be for everyone.

SPEAKER_01: 0:44

But Hugh, do you want to start with maybe talking a little bit about what we're seeing in market?

SPEAKER_03: 1:01

I am the acid capitalist. That is my social uh brand. And what is acid capitalism? It literally means if you want to see the future, you have to elevate your mind. Now you don't necessarily have to take acid to elevate your mind. But I would emphasize three properties which are I think they're actually just the same thing: playfulness, curiosity, and mischievous. I'm a mischievous person. I I touch plates and sometimes they're hot, and so I don't touch them again. I also have to allude to the fact that I am a Benjamin Button. I'm living my life in reverse. You are meeting the 21-year-old version. When I was 21, I was 65. I worked for Bailey Gifford in Edinburgh, and I was surrounded by old young men. I literally wore a three-piece seat, uh, three-piece suit. And I worked for a magnificent organization that did get me, and I didn't quite get there. And it was eight years of misery. And it has to be said that if they had been less successful, they would have fired me. And then uh I went to London and and I worked. I worked with a fallen idol. I'm not sure what I can say, but I worked with Chris Binotti. And I was number two with Crispin. And actually, playfulness and curiosity, and being mischievous, does come through Christmas, but the regrets of that. And I do a podcast, I do many things. But I do a podcast, The Asset Capitalist Podcast. And the last one, I did my point was you and I, this room, this society, we could not, we could not build the pyramids. Yeah. And and the reason is there is a there is a great conceit and arrogance of modernity. And it passes from one generation to the next with technic with the elevation of technology. That somehow we are superior to all those who came before. And when we look at when we're presented with a riddle, the majesty of the pyramids, the conceit demonstrates itself with these crockpot theories that it must have been an alien. There is there are extraterrestrials and they came and they passed on secrets and then they left. We built pyramids. And what my little cabaretio is all about is trying to push back on too much process and stiffness in the financial affairs of other people's mind. Again, to see the future, you have to encompass some playful characteristics. And without the compression, because markets, risk assets are they trend higher with prosperity. The prosperity is a constant. I mean, the the young kids, I'm I'm staying with my daughters, and they're at UCL, and there are signs for the Marxist takeover everywhere on campus. And indeed, it's at Stanford and Harvard, they are having they are inviting the who's who of the greats of the private sector in the American being invited to these elite institutions to debate we should ban billionaires. And of course, we've seen the election of the mayor in New York. We are clearly at a is at a pivot, but we're at a point of great, great social tension. The Dallas Fed, a chart emanated in the last two weeks. And the Dallas Fed are quite they're they're clever. You know, these institutions have lots of PhDs. And be beware of the curse of PhDs. Again, that's the conceit. I think the Bank of England employs over 200 PhDs. And in the majesty of their wisdom, they were selling, as you know, in 2002. They completed the disposal of half of the British horde of gold. The conceit and the arrogance of a well-formed argument. They sold, think of all of that gold accumulated through feast and famine and revolution and fighting Napoleon. That's Napoleon on now. He lost Tel to go away. And it was sold to the conceit of the PhD. And I'm glad to say I was one of one of the plucky pirates that was the other side. I was buying it. My first year as a hedge fund. Gloat or as an introduction, I made 50% in 2003 because I could see the winds of change. So I'm kind of someone who it takes a lot. I ask and I demand a lot of you, but sometimes with pivots, the crazy people actually gotta listen to it. Now back to the Dallas Fed and their PhDs. Their best estimate of tomorrow has never been so what I want to say. Divisive, it's it's never been so winner takes all. The per capita income in America today is$50,000. So we take GDP and we divide up by all those American souls. Um and if the promise of the productivity et al from AI succeeds, it will expand by tenfold. We will be very rich. So we're either going to be ten times richer or dead. Now, I and I'm I'm actually not being playful. This is the the sh this is, you know, the non-humorous PhD take. Now, if I come to you and say I will make you 10 50-50 here, 10 times richer or dead, is anyone signing up for that? I'm not. And so you actually see the manifestation of that in consumer sentiment indices. And we've got acres of data on this stuff, 50-60 years. Consumer sentiment in the US is below where it was in 1980. In 1980, the Fed pushed rates to 16% and forced a recession with the oil crisis. Having seen the previous oil crisis where we'd had the biggest decline in GDP since the Great Depression, that their reaction to the second one was to hike rates and bring it on. And we had massive financial bankruptcies, et cetera. Consumer sentiment was stronger than that it is today. So we're confronted with a lot of uncertainty. I'm gonna wrap and I'm gonna try and answer the question. The challenge with a bubble, the challenge with investing is how you focus your time and your effort. So again, let me say say something silly and then try and convince you that there's some intelligence to it. That I survived for 15 years. Managing other people's money in my eclectic world was just the greatest joy. I woke up with passion and vigor until I didn't. I woke up, but I didn't have the passion and the vigor. And I exercised, and my ambition was to be a world class loser. Now you hear the sconchacy, and the Scottish football team just won last night, so maybe we're breaking the stereotype by be a world-class loser. What do I mean by that? You are confronted with making decisions on events which have yet to happen. You are gonna make lots of mistakes. How's your game? How is your how are you set up to be wrong? Because if you're if your errors don't kill you, you are gonna be the king or the queen in the rural. That was my modus operandi. So within a bubble, work out how not to. I was fearless because I didn't fear wrong, being wrong. And I didn't fear being wrong because I'd already, if you will, set aside my strategy. Okay. So the challenge is is is size, because a bubble, I was seeing this earlier, forgive me, but the the the a bubble is is Jesus, and you are buying into the singularity which is going to make us richer. You're buying into Elon Musk's singularity, and that is divine-like and its implications. But I am Jesus, and we're in the Garden of Gosemity, that fateful night. And I turn to you all and I say, You will reject me. And you see, but Jesus, like you are the AI singularity, you're gonna make me rich. I'm never, I'm never selling you. I'm with you to the end. And Jesus slaps you, and the cock crows, and what have you done? You've rejected. So we are in a dynamic the last few days, the market's pulling back. And they're great qualitative stories that would convince you to get out. So make sure when the cock crows, make sure you've decided whether you're a believer or not. Because if you're selling when the cock crows is too late, you that you lost out. So that requires size. And it also requires, I don't want to call it diversification. I want to call it we pursue the royal we. But I think of the world in terms of quadratic expressions. I say I mean I don't, but I'm saying quadratic because I want to talk to you about the quadrants of global macro. That you should think of the division of your wealth as being separated into four components. And your daily, your daily, but your weekly or your monthly, your quarterly task is to assign weightings to each of these four buckets. Now I come from a dollar wild, so my dollar wall would be cash. I'm bad percent on cash. I mean, any investment manager today, the return, annual return should be underpinned with four percent. Cash never leaves your portfolio. You buy everything on margin. You pledge, you pledge your cash earning 4%. You get four, and you get credit to buy rising asset prices. So managers who are making four or five are just not in the game just now. That's that's just the cash, right? Now, cash would also be your choice of currency that you hold to denominate your wealth. You are here because you are franchised. You have assets, and you have a choice in terms of the division of currency to hold that. So that's the first quarter. The second quarter is the equity market, and it essentially is NASDAQ or SP. Okay. The third quarter would be fixed income, would be your TLT. My God, TLT is destroyed, maybe. Uh long-duration US government bonds. Okay. And the one thing you should know there is we've had profound mean reversion. A very, very rare thing has happened. The long end of the United States bond market has halved in price. And with things half in price, people don't like it. Yeah. If any of the the four pillars of my world fall 50 or 60%, I have to buy it. It's mean reversion. If a stock falls 50 or 60%, I don't have to buy it because there's idiosyncratic risk, which you don't have at the index level. So we have to consider that fixed income quadrant. Okay. And then finally, and where all the fun is, is in the the universe of alternatives. And that's that's an enormous bucket of 150, 180 trillion dollars is private equity, is commercial property, is gold. And of course, it's the new crypto Bitcoin universe. There are probably five things that I forgot. Okay. So armed with quadrants, being conscious of size, and consciously trying to allocate your wealth between those buckets, who cares if it's a buck uh if it's a bubble? You've made yourself anti-fragile. So like it was perfect.

SPEAKER_02: 15:37

You know, he before we open up to questions, I one question for myself actually. Historically, you've always talked about the fact you see rakes going to zero. Is that something you still will see?

SPEAKER_00: 15:48

Uh the I'm prevaricating because of how you presented that right at the end. Is it something I see? It's something it is a view of the world which may happen. It may not happen.

SPEAKER_03: 16:14

What the n my fascination with it today is if it does happen, it has is loaded with convexity. Which is to say, if it does happen, you the pricing structure of the market has changed in the last three months or so, whereby the return on such strategies, which are option-conceived and somewhat complicated, but you're talking about a return of 20 times your money. And if you offer me I mean, what is better than great sex? 20 times your money. Forgive me for being vulgar, but you know, uh, if I can make 20 times my money, I'm I'm I'm playing. Okay? So now let me. So it's important that then we I don't care about people's opinions. I care about the consequences of the opinion. Uh and so there's a consequence of that opinion which can enrich all of us. Now, now we have to talk about the probability of it happening. And it's a very relevant question. We had Trump badmouthing the J-Man again, Paul, yesterday calling him a very stupid man. He's not very stupid. Oh, I said. And Trump is not very stupid. But there is a dynamic going on that you are not aware of. Uh, it's complicated. Let me see if I can make if I can simplify it. US Treasury bonds, 10-year plus. I mean, I'm gonna ask you and no one's gonna answer, but could anyone dare tell me the size of the US Treasury market, the duration size, like the bonds that have been issued that are out there today, that have at least 10 years. No, let's go, they have seven and a half years plus of maturity to them. How many trillion dollars? Look, a show of hands. 20 trillion. Who's 20 trillion? No, so no one's 20 trillion.

SPEAKER_00: 18:18

10 trillion. I mean, do people have hands? Okay.

SPEAKER_03: 18:24

Right, could so uh and I should qualify that the American economy is circa$30 trillion. And we know that debt to GDP is one, and and sometimes they misqualify in and they they bring in debt which is owned by one part of the US government agency to another. We don't count that, right? But let's call it 30 trillion. So we had about, I think we had a quarter of the room saying 10 trillion. So that would lead me to believe that three-quarters of the room believe that there are there's really not a lot of treasures. Is that you're telling me? Because I think there's a lot of we we keep hearing that we're drowning. Oh, so you think 40 trillion? There can't be 40, because I've just told you there's only 30. Anyway, shut up, B.

SPEAKER_00: 19:08

Uh there's five trillion five trillion of seven-year plus treasuries in the world. And I might tell you that's not a lot.

SPEAKER_03: 19:22

The gold market is presently capitalized at over 30 trillion. So the value of gold is six times the value of treasuries, but of course you've got to buy gold. Okay. Now, let me tell you something more relevant. The principal risk asset when treasuries that the risk-free, when it's so tiny, the principal risk asset is mortgage-backed securities. There are 13 trillion mortgage-backed securities sitting on the balance sheet of commercial city center banks. And margins are tiny, and those banks have to hedge interest rate risk. We've just gone through a period where the Federal Reserve went from zero to five and a half percent. Banks found the hedging of their book went completely to hell and bad. And what the banks had to do in that environment was they, and it's convalidion, you have to trust me, I can explain it later. They had to, to control their risk, they had to buy, sorry, they had to short sell 10-year treasury futures to hedge what was happening to their$13 trillion mortgage bank security. They had to be pro-cyclical. We had inflation, we had every hedge fund manager in the world wishing to short sell treasuries, and we had pension funds giving up on 60-40 and selling physical, and then we had commercial banks engaged in the hedging of their mortgage business short-selling. There's a reason why bonds fell 50%, but they just it never happens. We had a profound devastation in the risk-free market that you're not aware of. Okay. Now, what happened in 2020 and 21? There was a pandemic. Interest rates were very low, long-term rates were very low, and everyone that had a pulse in America refinanced their debt. And and everyone's mortgage, the 30-year, you could refinance your 30-year fixed at 3%. No one is moving home today in America. And Trump actually alluded to this in his what he was in his nonsense yesterday. We want to help the housing mobile. Turnover has collapsed. Why? Why would you move house? You'd have to swap 3% fixed for 30 years for six and a half. Not happening. We've never had such a concentration of a flashpoint that the entirety of the American private sector fixed at three in 2020, 2021. And my business is all about the impossible happening. What if the 10-year drops, what if it goes back to 50 basis points? Right? You unleash it, you will trigger, you will make it possible for refinancing. Now, when you so we're talking about rates going to zero, and I said to you, when rates went from zero to five and a half, these gigantic institutions had to short sell. When the opposite happens, again, it's reflex reflexive, pro-cyclical, and they're buying. So there are some convoluted options which make 20 times your money, betting on zero interest rates or rates below one. The consensus, there's this notion of a natural rate, an R squared in the academic circles, where rates are doing no harm and no benefit, a neutral rate. And the policymakers have convinced themselves that it's three, and the market has joined them in that belief. And so rates are supposed to converge to three by the end of next year. Now, Steve Mirrill, Miran Mirrill, who was the president's head of economic affairs and then was put on the board of the Federal Reserve, and he's the sole he's the sole dissented. He's like, cut interest rates, cut interest rates. And that's just because you're a Trump guy. He's the smallest guy in Wall Street. He's a modern-day Keynes or Friedman at his understanding of what's happening in the world. And what he's seeing is that the model used by the 400 PhDs who work for the Federal Reserve is wrong. And it's being distorted by prof a profound concentration again of an event that you had the Biden administration say, come to America and become democratic voters. Yeah. And people came. And people came seeking the American dream. They came with very little. And with very little, the demand, the high yield credit risk stuff, that that that suddenly like people want it. Like the they're the people you don't want to lend to, but you know, hedge funds will lend to you because you make a pretty, pretty penny. They're the people that buy the secondhand cars. They're the people that buy who rent. Car parks are full of abandoned cars because another administration came in and said, get out. And you know, and and with force, with ice. And the people went, I'm getting out. What if what did you see 10 days ago? Carmax, the largest reseller of secondhand cars, down 27% in a day. Those people are gone. Right? So what Steve is saying is that when they were coming in, you got the you got 30 years, the impact of 30 years of might of immigration concentrated into three years. And it's distorted your perception of where the neutral rate. Steve believes the and the Trump administration believes the neutral rate is maybe one. And the longer we fight resetting to one, the more we might have to overcompensate and go to zero.

SPEAKER_02: 25:44

Very keen to open the floor up to any questions. So if you can stick your hand up and then uh Daniel will hand you the microphone.

SPEAKER_00: 25:54

Please don't be shared. Based on the interest recurs, uh could we talk about your past of overseeing there in the short term right now?

SPEAKER_03: 26:09

Short term, long term. Um there right. Absolutely. So so again, if you listen to my my podcast, I'm trying I'm gonna try and navigate in the coming year some of the tricks. And there is a there's just something you have and I don't believe in complexity. Complexity can corrupts. Complexity is conceit. Okay. The thing that I've that's worked so well time and time and time again, is a long-term price compression. Let me give an example. NASDAQ peaked in March 2000, if let's call it 5,000. 17 years later, it was at 5,000. 17 years and six months later, it was at 5,500. 18 years later, it was at 6,000. And today it's gone up fivefold. When you took out that price barrier, when a price barrier has existed for a very long period of time, it exists because the people who know it best, all these analysts, all these banks, all these great minds, it's impossible to get confident about tomorrow. And then something changes. And so I'm again, I'm not warm of a God, but I I believe in his sloth. That the genius of God is his slothful, he or she is slothful. Like, let's not be in a hurry, take our time. All right. So we don't have to be the expert. Because but expert opinion leaves its trail and its mark in financial markets. And if you're curious and you know what to look for, you piggyback on it. Okay? So if you had just been set up, if you'd had my conversation here and we were and we go back in time and you see NASDAQ taking out the high, what are you gonna do? You're gonna buy. And you're gonna be five times the better. Okay. And it's been a long time going, you know. It was the last day of the 1980s when it was, you know, it lasted these levels. Japanese energies, I would bet you would be five times greater in the next 10 years. Like, I know what you're gonna say.

SPEAKER_00: 28:34

Why? You're asking the raw question. And it's your number one question, why?

SPEAKER_03: 28:43

Because you've got this this monkey mind that's it's this stopping your imagination. And I say, why does it not matter? Why did US stocks crash in October 1929? Why did Nasdaq peak in March 2000? Why did the the the SP drop 20% of the Dow drop 20% in a day in October 87? Wait, there's no accepted answer.

SPEAKER_00: 29:11

Why are you looking for answers? Uh silver silver's a loony loon.

SPEAKER_03: 29:21

I mean I gold and silver are just stupid, right? Now, when I say that, can't get really angry. Like they're emotionally invested, right? Uh it doesn't know that you love it. You can actually call it names. Gold really stupid, right? And silver is really, really, really stupid. You know, I mean, you know, the gold does is a monetary asset. Silver's was a monetary asset. Not a monetary asset. Okay. But silver peaked in 1980. It's taken, what, 45 years? It's the longest compression ever. I hate silver. I'd buy it. Of course I would buy it. I'd buy anything that's had a compression. Again, a story I shared earlier. Oil, I think it took 25 years for oil to breach$40. And it breached it at the dumbest time ever. It breached it in 2007. And I I was so I would stay at home. I I lived in Ottaho. I would stay at home, I'd listen to Pink Floyd, and I would just I had programs where I could so charts for me were not so charts are a small part of the exercise of my mental exercise, right? And it's like sheet music. It stirs the curiosity within me. And I I could see oil and a few other, I could see a pattern emerge. And I called my trading team, and so we took an initial position in Weird Group. Weird group's British mid-car Scottish business, and it'd be and it makes pumps and valves for the extractive industries. And it makes 12% operating margin good, like just properly managed. And they would occasionally make acquisitions, and so they would grow at 10%. The enterprise value to sales on that was two and a half times sales. My team look at it like, we ain't gonna make three, four times our money. There's no blue sky in this. And my guys were the sw. I'm the dumbest. I am, you know, I'm I believe in principal and agent. I'm the principal, and I I can go to employ agents who are way smarter than me. They couldn't get it. Okay. I said to them, go back and put 80 bucks as your oil price. You made three, four times your money. I made seven times more money. So Japan has just done that. The currency, again, ask me why. I don't know. Currency is going to 200. If it goes to 200, it probably goes to 300. That's kind of what the market's telling me. Could I could give you a kind of cookie theory why you may be aware of the Eurodollar system? The Euro dollar system is the global matrix of private sector banks, and it creates more dollars than American regulated banks create. More dollars. It creates it offshore, it's unregulated, it's unleveraged, they make a lot of money. And the biggest offshore market is Japan. And you the the big tease was QE's going to be hyperinflationary. But for it to be hyperinflationary, banks had to be persuaded to take those reserves and go crazy. And the supposition that I have is they did it in Japan. And they did it via the union dollar market, where you could take a trillion yen, I don't know what trillion yen is, but a trillion yen's equivalent of dollars, right? And you could go to your underwriting, the underwriting window, which is really like the pawn shop. You've got this big ring. How much will you give me for this? I've got these useless JGBs. And the guy says, JGBs, they're amazing. They never go die. No haircut. He'll give you the dollar equivalent. Okay. And so the problem is they basically they're getting cold. They got naughty. And so I think Japan is, if every evidence is the stock market's going to go fivefold higher and the currency going to go to 300. I answered your question, but it'll be a very long way, sorry, and I probably killed the diet.

SPEAKER_02: 33:38

Here we are, of time. I think we're five minutes, but I think it'd be worth you mentioning maybe your substack and maybe the asset capitalist Sunicam.

SPEAKER_03: 33:48

Yeah, sorry. The uh next year would be the fourth year, so you will not be aware of the splendor and the joy of, say, bots. I was the caricature of a Mayfair hedge fund manager. My children were in private school. I had to compete with the entirety of West London. I would sit in a Land Rover, I'd have a driver, and he would take me to my country shack in the cost holds. Why did I tell you that? Oh yeah, so the the still was a nice thought. It's a nice, nice thought. Summer. Summer camp, yeah. What was that going to say? Anyway, summer camp. West London, you know, I was going to hear. Oh yes, no. I was the caricature, yeah. And so I would vacation in in the Caribbean in December. In Antigua, God forbid in Barbados. And and these places, mmm, the Caribbean is sketchy. And and you stay in beautiful places, but there's a frontier, there's a security system, you don't go out. Yeah. Uh St. Bars, A, there are no Brits. This could be a good thing. We're looking for like, we want diversity. And you've got that je ne sais quoi, the French thing. Beautiful French ladies. And and you don't lock out, there's no crime. Zero crime. And there's zero tariffs. Um and this is and I I put on a camp once a year uh with 10 to 12 speakers. And it's a camp like no other. You s you stay in paradise, um, and we luxuriate. We have we have this formal thing, but it's breakfast, it's dinner, it's it's drinking, it's getting to know you. And and uh maybe I'm gonna do two next year, maybe one run about May June, and the other one in mid mid-August. Um put it in your calendar. The the Substack Um is you get me every week. Yeah. So you get you get the crazy guy. So you need the straight and the narrow, and then you need a little bit of titillation. I'll be titillation.

SPEAKER_02: 35:52

This has been fantastic. Thank you very much. I assume you'll hand around for any questions. Thank you very much, sure.