JACK FARLEY: Today, I'll be speaking to the one only Hugh Hendry about the relationship that he sees between gold, silver and real rates. Then I'll be speaking to Weston Nakamura about some dislocations that he's seeing in the VIX futures markets, but first, I'm going to be speaking to Real Vision's own Max Wiethe about the stories of the day. Max, welcome to the Daily Briefing. How are you doing?
MAX WIETHE: Doing well. I know we've got other people coming up, so we're going to keep it short and sweet.
JACK FARLEY: Yeah, this is going to be a lightning round with you. Warren Buffett and Berkshire Hathaway recently filed their 13-F. That was yesterday, I believe. What can you tell us about that, Max?
MAX WIETHE: Well, the big one for me was the dropping of Barrick Gold. Obviously, gold is down today, and Barrick being added to their portfolio was touted as this evidence that Warren Buffett loves gold or is starting to get gold one, like the size, like Buffett doesn't make purchases of that size, if Buffett makes the big, huge multibillion dollar purchases. I don't think Buffett had anything to do with that purchase in the first place, but it's the way that narratives are spun.
I think it's just another great example of being cautious, you should be cautious about narratives and remember who's saying things and why they're saying them, because that didn't pass the smell test for me originally. That's the big one. I think they added some Verizon which they had trimmed earlier in the year, so a little bit of a reaffirmation of that bet. That was the main one I was watching. Looked like they cut some financials, they added one insurance company, but cut some of their financial holdings there.
JACK FARLEY: Yep, I believe they exited JP Morgan entirely, which is significant. They trimmed it earlier. They also cut their Apple stake. Although that's not as significant as the headline sounds, people say, oh, he sold Apple, but really, they're just trimming their position because they still own about $120 billion worth of it.
MAX WIETHE: Yeah, that's a perfect example of what I'm talking about when I say narratives. It's a great narrative to say, Warren Buffett sold his Apple, but 120 billion, that's still pretty confident there in Apple's future. I would just tell everybody to be cautious about these sorts of headlines and narratives because often, there's a reason whether it's clicks, whether it's supporting your own positioning, or your portfolio, if it's coming from say a gold bug. Just remember why you're hearing it, who you're hearing it from.
JACK FARLEY: Yeah, as always do your own research, folks. Let's move on to the next story, which is the storms that have engulfed much of the middle of the United States, particularly Texas, forcing rolling lockdowns on the state. Max, what can you tell us about that as well as the energy implications that are perhaps behind it?
MAX WIETHE: Look, as far as boots on the ground, I'm probably not the right person to tell you exactly what's happening in Texas. I know we have a team slowly growing in Dallas, and I'm sure they could tell you horror stories about what's going on there. Then obviously, some people in Austin too. We've had to cancel interviews. We hope to have some interviews with some people who are based in Texas this week that we've had to cancel. It certainly affected us, but really, in terms of what I'm taking away from it is more big picture stuff, which is I talked to Sean Hackett earlier this year.
He was talking about a bullish view on commodities, a lot of people have been bullish on commodities. It's been because of inflation and inflationary concerns. He has a completely different take, which is that there are supply disruptions and obviously supply is determined by the crop production, which is largely driven by weather. He was saying, we're going to have a cold winter, we're going to have extreme weather volatility, and that's going to be bad for crops. At least, though, so far, that seems to be working out.
Again, it comes back to that narratives stuff that I was talking about earlier, which is the narrative and what's happening are not always tied together. Then thinking more long term like, not a little bit, this is drastic, cold weather and serious, but we're supposedly going to electrify the entire-- everybody's going to have electric cars and how much electricity is that going to add to the grid and look what this weather has done to the grid in Texas and the inability to produce enough power there.
I'm sure Adam Rodman is pacing back and forth in Dallas in the cold saying if only they had listened to me, nuclear fixes this. Just thinking about this as an example of longer term trends that electrification and commodities like copper that are going to be needed. There's just another datapoint, evidence that we're not even close to where we need to be in terms of having the grid ready for all the electrification that is supposedly coming in the future.
JACK FARLEY: Definitely. With regards to facts mattering more than narratives, there's been a lot of narratives being bandied about, oh, this is solar's fault, this is wind's fault. Oh, no, actually, it's natural gas's fault. I think the reality is just the grid is not built for such extreme weather. I'd also add that a lot of people see that we've seen enormous price increases in oil and natural gas and think that that's inflation.
What it obviously is from exogenous events, such as-- a storm is not going to be here for five years, but that shouldn't affect the five-year breakeven inflation rate. Yet you hear some people saying it does. Just to give a little facts to the story, the Texas power grid generally requiring about 70 gigawatts, 42 of those gigawatts were offline as a result of the Arctic frost. Also, as a result, about 40% of US oil production is now offline and you see the WTI surging well beyond 60 into about $61.50 now, so you are seeing how that story is affecting prices in real time.
MAX WIETHE: Yeah, and I would say less the story affecting prices but that's an actual supply disruption there. Yeah, natural gas. Sean, in the previous interview, I mentioned with Sean Hackett, he was extremely bullish on natural gas because of this hard winter. I don't think he was expecting something this extreme, but it really matters in physical commodities. It's a supply and demand story.
JACK FARLEY: Absolutely. Max, switching gears again, the GameStop hearings commenced today at the Congressional hearings in DC, what do you make of those?
MAX WIETHE: I think everybody highlighted how humorous it was that-- what's his name-- Roaring Kitty used the phrase "in short, I like the stock", which people say that's all the cover you need on the sell side to be able to justify your shameless pumping of a stock because you want to get their next capital raise through your investment banking arm, whatever it may be. Look, it's all well and good, it's super funny that he's able to do that but I would like the conversation maybe to shift into the idea that that's all it takes to defend shameless pumping.
The conversation needs to shift to this has exposed broken aspects of the system. I want it to shift from sticking it to the man to reforming the broken system. I've had a little bit enough of the stick it to the man stuff that's happening there. Then as well, Robinhood came out and they said that they did not favor hedge funds over their clients. I think that that is true. Again, narratives really got away from themselves here in this, and it has lasting effects and oftentimes negative effects for people who cling to those narratives.
JACK FARLEY: Very interesting, Max. I have some things to say about that, but we're going to have to move on to Hugh Hendry now. Thanks again, Max.
MAX WIETHE: Thanks, Jack.
JACK FARLEY: Hugh, welcome back to Real Vision. It's great to have you.
HUGH HENDRY: It feels like just the other day, I was talking to Raoul. Great to be back.
JACK FARLEY: Yeah, you had a conversation with Raoul about Bitcoin on Twitter Live. That got pretty intense. Now, this is going to be a little bit more of a mellow chat, just talk macro as well as to talk about a new project that you've been working on. Hugh, I just want to ask the ultimate question for macro investors, which is how are you feeling about rates?
When you came on with Raoul in April of last year, rates were gyrating all over the place, the 30-year was very low, they were reaching record lows. Now, rates have continued to increase. I know, Hugh, you've been looking at TLT. How are you thinking about rates and how is the rising affecting risk assets?
HUGH HENDRY: Like you said, the last time rates running on their ass run about 50 or 60 basis points, much has changed, much hasn't changed, but certainly those rates-- where are those rates now? 1.3 or so? That has implications clearly for almost every asset class. In the absence, and it has been the absence of inflation, the much anticipated inflation over the last 10, 15, 20 years, gold has moved in lockstep in terms of [?].
They want to see a convexity and optionality to the notion of the situation spiraling out of control and into notions of deflation which is to say lower bond yields have been good for gold and gold has moved as real rates, taking long rates in account for expected inflation, have been pushed to historic weights, historic negative weights. What is changing? Jack, for you, what was the most important macro event of the last week or so? I will give you time to answer that, because I put a stop watch. For those of you who insist that I'm verbose, you're probably right.
JACK FARLEY: Oh wow, the interviewee has become the interviewer. I know there's a retail sales number out today at 5.3%. That was important, but by your groaning, I gather not. Hugh, can I turn the issue back on you? What do you think?
HUGH HENDRY: Yeah. I have no idea, but the thing that made me consider was the report on the results from L'Oral, the cosmetics company last week, who claimed that we're all set almost a bit like the Prince song, we're all set to party like it's 1999, albeit they referred us back to 1919, which is cute, because of course, that was pretty the back of the last awful virus, major pandemic virus, clearly much more severe in its ecologies but the record, the precedent-- and I'm a precedent person-- from back then, from time gone past, people party, it was just a pent up release.
I'm seeing that. I live in a party place. I live in a grown-up Disneyland and a fantasy place. People, when they get here, they just want to let it rip. I can see it in my reservations calendar. What do I think? I'm going to share my screen, God forbid if we pick up some porn or whatever, but it was clearly not me, it was my son or whatever. I'm trying to Google barcharts.com. There we go. This is simplistic, but this is growing by 2010 or so, and it's the long term positive chart in the ETF for the long bond.
In a bull market, you'd be looking for retracements and be looking to buy it, maybe right about there and it's not capturing it. I probably come back to this level, whatever it is, 130 let's say. We try to break out back in 14, 15, we failed. We tried another breakout, we failed. Then the real thing with the pandemic in front of us, boom, the thing moved. Back here, I get a rational bull of someone who was fearful of deflation would be thinking they could pick up Treasurys, but with that L'Oral thing, we're going to put layers of makeup, we're really, really going to party.
I'm being too [?] that it's going to come to the level, I don't think 120, 120 would be too easy. It's going to get to a level where classic bull markets have to kick all the believers. I keep going back to the disciples and the garden of whatever it was and I'm like, hey, the centurions are saying, you know this guy Jesus, the guy with the beard? I'm like, never, never heard of them. I think we're going to have one of those gardens, because the-- whatever is called, moments we should say, it could probably trade in that 100, 110 area.
That clearly is speculation on my part, but I like to believe I like to create notions of drama, and then ask myself how do I think? I think it's going to be really-- I think the economy is going to boom, I think that those long rates are going to be under enormous pressure. I don't believe that bull market is over, but I believe people will be led to believe it's over. That's my thought experiment, if you will.
JACK FARLEY: Interesting. You think short term, or maybe near term, there could be some pain in the Treasury market. Hugh, I'm just thinking it's built over the last 10 years, the last decade, where we've had strong economic growth and low deflation. What you wanted to own was bonds and you wanted to own tech. I've seen that both, neither of these two assets will perform well in your new party, reflationary world so you want to own the cyclicals, your cruise liners, your energy servicers, what else is in the Hugh Hendry portfolio according to this thesis that you just laid out?
HUGH HENDRY: In the fantasy portfolio, because all of my activities are centered on the island, I think it's worthwhile making that very, very transparent but it is the mining complex, it is the commodity complex. For that, that extends actually to Bitcoin, which is to say the assets that in the last four months have just been skyrocketing and it's a profoundly difficult and compromising position today because Raoul's kept calling me a mean reversion guy. He's like this funky-esque guy and just this boring mean reversion guy, but so it may be.
My compromise, I think the movement has been so stark in the last, especially the last three months that I don't really want to commit everything. Again, let me finish by if normally I had 100% equity allocation, then I would today be somewhere like a third of that, given risks, etc., and given valuations, etc. Of that [?] let's say I had $100 million portfolio, I want to put today $5 million to work, okay. Today, actually, I'd be putting probably about $15 million. I'm trying to flesh this out, and I'd have positions in mining stocks and we're talking about uranium and silver.
Gold is really, really tricky. We have this thing called Bitcoin. To come back and quote from Bordeaux and YouTube, Bitcoin is like a thief in the night, see the world by candlelight. It is robbing and is robbing someone and is robbing gold. Like I said, gold has historically-- this recent history has moved in lockstep with real rates. Real rates had a bit of a gyration in the last four months. Where real rates are, I think gold should be trading around about 1950 or so. It's not. It's trading about 150 less than that.
If you were to put that into the capitalization, there's a lot of focus today on the size of the gold market and the size, the comparative small size of Bitcoin. Gold, I think is $13 trillion, and Bitcoin's lower. It's closer to $1 trillion but I want to say the movement in Bitcoin has been-- the movement is akin has basically gold's not trading at 1950 because all of that money I want to allege has gone into Bitcoin. People were hitting me with Raoul in some of my comments. They think I would be short for choice. No, I wouldn't.
[?] things which are powerfully exploding higher. I would be long, but again, it'd be long in terms of if I wanted to have $100 million, I'd maybe have $15 million, $20 million. I want the capacity to be able to buy this if volatility moves both ways. I hope I'm not confusing you.
JACK FARLEY: No, Hugh, you're making perfect sense to me. Let's say that's your $100 million portfolio. Obviously, when you're working with a portfolio of that size, you're really aiming to protect that wealth. Someone like me, who's let's say, try to be a little bit more of an entrepreneurial investor a little bit more of a hustler, take a little bit more risk. Is it calls on those gold miners? What's the play there?
HUGH HENDRY: Oh, listen, with junior mining stocks, all you're buying is context. You don't need call options on top. Things like the Nielsen in the uranium sector, I think it went up 55 times in the last bull market. When I was talking 100 million or 100 x, 100 apples, whatever, I wasn't talking about my portfolio. I was talking about a hustling-type portfolio. A portfolio that once it go out there and light up, its name-- my thing today is I believe the wisdom is the graffiti written in the subway walls. When you're reading my stuff on Twitter, that's what I'm aiming at.
The hustler portfolio I think, I would just urge all you hustlers out there, just the [?], we can all see point A to B and we think, if it all goes to B, I'm going to be so rich. The fact is it don't make many people as rich as that. The reason is that the journey tends to be, oh, shit, why did that happen? Actually, I've never heard this type of guy called Jesus. Never.
JACK FARLEY: Hugh, you mentioned subway in the walls, I think that's a great transition to a new project that you've been working on, which is a short film, which we actually are going to air on the Real Vision YouTube channel. It's called A Psychotic Cacophony. Hugh, can you describe what this film is about, and as you talk, we're going to include some footage from that project on screen.
HUGH HENDRY: Wonderful. That's very kind of you guys and girls at Real Vision. I put it out on my YouTube channel about two months ago, and I was such an idiot, because it's something that needs an explanation. Visually, I think it's quite stunning, part from the sections with me but what I'm trying to convey and I'm trying to convey my life's journey, not that I'm at the end of my life, but I'm at a point where I want to put it in perspective and celebrate it.
The fact is, I had the weirdest, weirdest childhood, necessarily a child, as an adolescent, I didn't smoke, I didn't drink, I didn't do drugs, I didn't do girls, and I didn't do anything except study. Study was a passport for me to try and escape the chains that I felt were weighing me down. I felt that I lived in a gray world. The first section is very much that that gray is something I looked at my bedroom window, it was unchanging. It was gray, but my imagination, I had a