Hello, everyone, this is Hugh Hendry and I run the eclectica hedge fund the macro hedge fund, a rather idiosyncratic hedge fund and I run that between the years 2002 and 2017. Spoiler alert, yes, it did come to an end. I’d like just to remind you what what is the mission here the mission This is an exploration of risk, an exploration of uncertainty. It doesn’t matter that it’s January 2003. Actually, we’re going to be reviewing gold. Today’s seems something very similar to what was going back on there. So watching this we can we can look at it now you can examine it with hindsight, I hope that adds an element of entertainment to this exercise, but I didn’t have Got hindsight, I just had a sense of foreboding or a sense of change. So here we are is January I just made 4% stock indices as measured by the food co shirt I ate. And the pressures coming off me a little bit. I’ve kind of belabor the point that most hedge funds fail, and after the back of my, especially the first month with the hedge fund, and I’d be very much beset with such anxiety but here we are, the fund is up three quarters of 1%. So, you know, let’s not open the champagne yet. But the equity indices since the launch has been denied over 2.5%. So kind of getting a little bit of breathing space to, you know, to find my own pace and approach with the hedge fund. He has a question for you is 4% a good month. So, yes, behind the accent decline in fitzy. All shortages has been Just a big explosion at the short end of the ball curve, you know, like, people have just discovered that they are on risk and we’ve made money we profited from that, but I tested it more further you have to examine and explore the the nature of risk. We had been adopted, it may be a different recipe clearly seemed to be a different risk given the correlations. But from the scant evidence available in this little document, the the newsletter, all it can be said is that in terms of the, the scale of the bets we were putting on there were large, we were 1.7 times gross long. We had shorts, shorts were both 35% and so the the convention is to net one against the other so that would leave as 1.35 net long. I’ve never been a great believer in that if everything autocorrelated new shorts went Against at the same time as your Long’s and it happens, then we, you know, we were, we would have been in trouble. I like I always being a drama queen, I like to exaggerate my risk, they would have been an argument as I see that, you know, 28% of any V and European futures First of all, that is a really pathetically small holding and burn futures. To put in context, we had about what did we have, we had about just over 12 percentage points of add in to mid cap gold stocks, with their volatility, the volatility would have been four or five x the burns, I want to say that that position in the gold stock would have been just to the gold stocks would have been at least of equal risk weighting, if not more risky than the European futures position. And we had a we had a lot of cumulative risk, clearly risk was kind of pointing in different directions. And was that the ideal would have been that it was you one would have we could have counted some adversity. But yeah, the quarter of risk taking was high. We made 4%. There is no good malting in this paper. And I think that’s a functional, I typically would have written these things towards the end of the month. And I suspect that three to four weeks after the end of January 2003, we probably had seen quite a vicious markdown or reversal in the fortunes of those gold positions that I had in the hedge fund. I know I think I noticed that crystal artemus capital, Chris was always a great friend and some of his insights on volatility I always find inspiring, and I think one of his recent columns was noting the right hand side of volatility upside volatility and gold was beginning to look very, very similar to what we saw in the tech bubble at the end of the 1990s. Which city stocks would carry grew up in a Tesla Model they got like 150% they were then half they got 150% they had half that kind of sawtooth, but very, very dynamic to the upside. But with these, we try to hold trying to underwrite a 50% drawdown. Not easy folks and, and gold looks as if it’s transforming into that kind of profile as an example. At the end of me, I came across that I, you know, hid under a rock for the best part of two years, but with my awakening this year, towards the end of May, I want to say I put some cash balances into into gold and also being the kind of quality hierarchy of gold bullion futures I will also take some some silver royalty companies that then the major gold production companies, I want to see a Newmont and then you’d have some some juniors I’m not seeking to manage this thing actively. So that would be my universe. If I was actively managing, I’d be Almost 100% in in silver futures and gold mining, juniors at the present time. Why? Because those mining stocks just know that the junior ones are trading on not much not far away from one times nav, and I can assure you, Bill markets in gold do not come to an end when those guys are trading on one times three times for sure. One time. So the insight this month is is gold, gold gold. You’re making me old? Why are you making me old because of this journey that you’re insisting that I take? Why is this journey so? I shouldn’t say erratic, it’s not erratic, it’s explosive. Why is it explosive is explosive because there’s a huge amount of convexity optionality in embedded into Not only is gold embedded into the mining asset, but in terms of the valuation, like goodness is just full of these explosions. You have gold clearly, and you’d like an investment trust, you’ve got a price to nav And then you’ve got the interaction of the two. So what’s kind of happening is people can, they can see go moving, they can have expectations, those expectations can be shaped and formed by the rate of change that form of expectations can impact on the discounted cash flow to the interest rate to which the analytical models would bring forward, future sales of gold to the present in order to change and make calibrations to the asset power. And again, all of this you’ve got Ben this price coming in, I’d kind of inhaling exhaling, which is creating bigger and bigger premiums in a contract. And so variable is the rate of change in gold. That kind of normative intellectual macro debate in terms of the the background. Remember, I would say to you that this money that they’ve sought to inject I take somewhat exceptions to the notion of being printed but these expansions in central bank reserves. We have seen this year are very, very long, will they help the economy? Maybe? Will they help the stock market? They have? What do they do for gold? They’re just that it. That’s the least uncertain part of the equation. Yeah, they will boost the hub and they will continue to boost the gold price, especially if you think there’s going to be more such interventions, you have this kind of macro dialogue, you’ve got the kind of rate of change in the price of gold. And then you’ve got these kind of analysts, fading and moving around with their interest rate functions. And that all then creates this kind of sort of leverage coming through the price to nav probably at the end of February 2003. My my gold component had overshot and was probably beginning to spit on average gold realization price of more like something close to $400 when the reality was 306 You had a pullback and that’s why my tone would not have been victorious. I wasn’t high high fiving. Back then I actually in the the beginning of the managers report I did want to reflect on this notional house wanted explain our simultaneous ownership of gold shares. commodity futures. Well, that’s because we sell but government bonds so even some of you would know that between 2005 in the ensuing crash in house prices nationwide, this kind of unprecedented event, but we saw house prices tumbled. We’d been anticipating a deflationary event and had been arguing that if you think the future is inflationary, you should buy government bonds, which is to say, inflation would only be unleashed by by more deflationary events which would create heroic or endure interventionist monetary policy responses. That’s not what I mean. By in January 2003, that was more a comment. embedded in the observation I was seeing as called push panic. With the with this kind of waterfall decline in tech stock, the majority of the German stock market lost 80% of its value in those two years 2000 2001, three years to 2002. And I had been overseeing a unit trust, which is a mutual fund, and I done everything to I was notorious and avoiding as much as possible the ownership of equities. We had the the least risky equities. We had a lot of cash. And then we use the mandate to buy government bonds and no surprise that we would have had these German boons but one of the dynamics worthy of comment and the Turkish panic, this notion Have you fire in the cinema, horribly graphic people trying to rush to the exit. You’ve been seeing that I think we’ve seen that in Switzerland where the regulator had mandated a 3% return, a guaranteed return on both private and public sector pension schemes. And a was occurring just as the 10 year yields were beginning to dip below 3%. So that’s your kind of exit level, if you will. If you can secure 3% then you are kind of risk free in terms of being the provider of these pension liabilities with this guaranteed rate. But what is to happen if you go to point nine 9% suddenly you you going bankrupt, but you go bankrupt, more, the more that you can kind of fix your entry level yield it the more you can buy Swiss government bonds as close as possible to 3% yield. And so everyone’s thinking that recruits the top dish pilot. And of course that’s what drives the yields down To 99 to 98 to 96 to 97, where I’ve been down to negative 70 or 80 basis points. If not, if not more, but back then. That was the kind of rationale for owning German boon futures at the same time as we were kind of off to the races with these gold shares now given as gold you’re loving this extravaganza that 16 minutes. I can want to rain on the party and of course just point out as businesses go just kind of suck. If you look at Newmont, again, the gilded Newmont they can they can do no wrong. Well, the 10 years from 2000 adieu to 2012 you could go price gone 310 years, almost 1700 the EBIT margins that exploded but cash cost was getting, you know, so down expensive to get those last ounces of gold out of the ground. They’ve got more than doubled from $190 parents to something more like some hundred dollars an ounce, you still had operational lows of equivalent profit margins were reflecting that. But you know, net cash gone from 5 billion to net debt, they’d had to issue shares. So you as an equity holder, you’d been diluted. And then gold production was down a third as well. So you’re on a third blast unless you kept kept up with your rights, and you’re producing a thug less goal, and that’s in the best of times. And the other thing I must add is that kind of there’s a volatility illusion, the gold shares typically are kind of vibrating if you will, two to three times more than the gold futures. And so to compare how well the gorgeous performance really can make a comparison, what your return would have been if you’d had two or three times more in the gold futures, so get 10% but what would be your atomic 30% in gold futures versus let’s see attempts and position in gold Mining equity, normally find that that tends to take away. And there’s no great rationale for taking a very specific risk that you can find within some of these gold mining stocks. I mentioned royalty companies, Franco Nevada comes to mind. Yes, that’s it’s an oxymoron. They’re like a kind of a smart venture capitalist this mastermind special subject is whereas the gold and the by a percentage of production, they don’t pick up any liability associated with the cost. So as the gold price goes up, typically you find the cost of extraction goes up, it gets more expensive to get it out of the ground. And but that’s no problem for them. You know, where the gold price goes up their partners do very definitely want to get the gold out of the ground, and it’s them who take on the extravagant, extravagant cost to do so. They just sit there and they collect good water. Good luck if you’re trying to do a valuation model. Been there tried hard can ultimately just have trust in the matrix of the if you’re really risk hungry Eagle for the juniors just know especially because the valuation is rather compelling the one time metric the and then if you’re trying to leave office, you go into the larger cap stocks you’re trying to pay off more rescue being to get worried they’ve got really had a big one, then you should be in the world of stocks or you have like Think of it like a kind of staging post in each and weights which can change over the course of the rather extravagant writes that we can see in gold that we’ve stood I saw that I witnessed in the year of 2003 and onwards, which we’re probably experiencing in the here and now in 2020 with our graphic vision, Dr. miser, hedge fund manager, British hedge fund manager from Glasgow like me, I didn’t give A very different part of Glasgow company, the family company, the eponymous Yarrow shipyards, a big deal very socially connected but very entertaining. Nevertheless, I’d met David i’d fade these speaking engagements and he always had that that waterfront and he always made me make me laugh because what comes to mind is I recall having to attend one of these best or what is your best retail your best idea and David’s book before me and he was such a good like I said, entertaining with such a sucker for kind of by losing is not the right term, but you know, name dropping name dropping seems to be the best way of describing it. So he stood up before me. This will be interesting. I was like, wow, you know, one of our big investors or big investors, external investors in our our hedge fund etc underscore Pegasus. Dune performed well, but she flooded At the end of 1999, he was and again, it was his ardour for making these named connections. And he was like California warehouse, which was one of the biggest UK retailer called mobile phone contracts. I’d never understood why they should capture a lot of economic value in that transaction. To my mind, they were like the popular offering, you know, the, the phone, or the silver platter, regardless, is like so, you know, I’ve got the biggest seller of these phone contracts in the UK. They’re my fund. They give me all of this Intel. And not only that, but I’ve just spent the weekend in a in an igloo with the chief executive of Nakia. And you know, from our vision inside looking at the the Northern Lights, the future just seemed so bright not only was the present with a steady percent market share two times I think bigger than its nearest competitor, big fat profit margins, and Everyone loving in sports only was the present so amazing. But the future was he was going to be even brighter. And so I think it was just the name dropping that annoyed me so and I had to go next. And so as of now, you know, we also have we share something in common. Not our take on the future, but we have some common shareholders, common investors. And so yeah, we have to see you guys but I’ve not been invited. Thank heavens, I’ve not been invited to enable I keep myself to myself. I don’t think I had any, any particular Rage Against naki. I go, I’m not gonna give you a fundamental argument for why Nakia Pete at the end of 1999, I think fundamentals are redundant in the kind of exponential terminal stage of those bubbles. My point was we were experiencing a bubble and sooner rather than later it would come crashing down. That that ended up being correct, but I mean, who cares? The point of this As I got back into the office, and someone had ratted on me a problem where I was on the phone and like How dare you see such bad things about us, Crispin to his credit facility was could could be met was many things and it but at times like this, he was just such a great boss. And he made light of the monitor. And, of course, I had to fall in and I had to apologize. But I remember beginning the conversation as he can just say I really, really, really, really sorry, sorry, sorry, sorry, sorry, sorry. Sorry, I should never have also never have said that. I bought some Nokia way too early in buying Akio you know, I, I needed Durbin, deep triple before I bought it at 10 to see a trade, you know, 60 60% higher in the month of the month of June. And it’s for the worst of reasons because I just can’t get away from me it’s high. This bear market is profoundly volatile at the bottom of a range which can be can be enough to buy from you if you if you get your positioning wrong. But it’s that that fifth generation infrastructure spend this kind of looks if it can survive on its own as it is but the optionality that would come from, I guess, this politically ordained demise of who way this there’s some other Asian competitors out there. I understand that kind of useless. If the US is waging this war, it’s very awkward. It doesn’t have a national champion and just I can’t get away from the fact that embedded within Nokia is Alcatel Lucent. So loosen had been a big the US telecom infrastructure play, it’d be taken up by Alcatel and then it was subsequently taken out by Nokia, why or why or why doesn’t Cisco, one of those companies come in and take it extracted out of Nokia, and then have a national champion for us to rally around and ensure that it’s installed why not, don’t Question mark, but I took a gamble. I would I would not recommend it as a gamble to you but having being spoken about Nakia back then, see it’s been recurring. And then finally, David’s been recurring because I took a month and out of the office and I spent it in Mustique, very much. The VIP Island eclectic by nearly by nature, possibly cheap by nature. most secure a good deal on the cheapest house on the island. But it didn’t have AC but it did have these beautiful wooden shutters and you’d open on your island please, we would kill you don’t except there was no Island breeze for the month of November. And my son broke his ankle. He was four year old four years old and and the medication made him grumpy and my mother in law was that it was not a great time. Such not a great time that you know, we were offered to buy the property at the end for about a million and a half dollars. papers with Mick Jagger. That’s Sounds kind of worldstar ish. But such It was such a hideous time my wife said, we’re never coming back and anyway on the way, but as I made my way by after the month, the month, it seemed like kind of the election of the very close election between bush and gore and the drama in Florida, all the way by I was connected via Barbados, and who do I see? But David Young, he’s in the business class looking was latently wonderful. And I just look, I look like something that cat drags it. And so I put my head down and I kind of sped pass them to my cheap economy seats. But sitting there, I was like, You know what, I am definitely going to start my own asset management business. And so I thank David. I thank David for just pushing me to break the status quo. It’s very hard to break away from an existing But super different super energized partnership which was already but to see they’re at in the expensive business classes prompt on the trip from Barbados back to London was what I needed and what I need what you need is know for me to to sign off. I promise you these are going to become more regular. And yes, the eclectica monthly for January 2003 is other than it was a good month the boys coming by we are no modestly opsis etc. Let’s tune in soon find out what happens in February. I think we already know things get tough again. But anyway, thank you very much, guys. Thank you. Bye

Hi, guys. This is Hugh Hendry. Ahs, you know, Or perhaps you don’t. But I was responsible. I manage. I launched I was the chief doughnut for the eclectic and microphones between 2002 on late 2017 a 15 year beauties on. This is the third instalment ofthe confessions where I take you back in time, I take you bike to the bottom off the bear market off the great TMT crush, which had started in late 1999. And so here we are. Prices don’t 80% in terms of these technology names on I have lies. The micro front on it is no December. And for the month of December, I’m pleased to say that I staged something over comeback in true eclectic style. Um, what is that star that star typically would have meant We were. We had a profile which was long volatility on those can. A pivot moments when there was panic in the markets of markets were don’t hard, Marcus. We don’t rapidly. I would typically have hoped that that would have been a factor or a catalyst which would have spurred a post of piano within our for them. so December was one of those months. Thie British stock market The footsie all share was down the best part of 7%. As we approach the end of calendar year 2002. And as I approached the end of my first quarter as a hedge fund manager, I’d ask you to remember that hedge funds, really They’re just like high end. Some might even question the high end, but they’re like restaurants is a high risk endeavour. Lots of restaurants fail. The majority fail in the 1st 12 months on. That’s equally true of hedge funds on the fabulous returns, part of that always itself to survivorship bias to those who, uh, who make it through that first year, feeling talent is 400 fighters. But for me back then, I wasn’t sure. I mean, I wasn’t gonna be judged at the end of 2002 but at the end of 2003 for sure, If I didn’t get my arse off the floor and start producing a decent poised to return, especially given our positioning at the bottom of a bear market, then I I probably would no be recording this today, but as it was with the market down 7%. Thie eclectic of fund was up the best part of two or 1.8. So kind of like the mirror image of the first month when we began. If memory serves me right, I’m probably making this up. But it felt like the market. Um, I for sure we would. Yeah. I think we were done like 4.8. The market was up seven. Probably overstating that. But these returns in December allowed me to close out the quarter being down three. Um, not fatal, but, uh, I’m off the market up 1.5%. So you’re running a kind of long ball running an idiosyncratic micro portfolio. And using this all equity highball, um, indeed, shortfall Equity index, if you will. So, you know, we’re not comparing apples with apples. However, that’s that said things are kind of beginning. Tio, I’m sensing I mean, clearly nothing like making it all about what I want to say. It’s all about the market, really kinda getting pushed, pushed, Lord, and you discovered that actually, you’re making money. And so my pecker, if you will, is up. I’m talking about a commodity speculator Paradise. Now that’s kind of where we went to, but this was still a rather speculative town. But clearly I’m feeling more confident on in the opening commentary, which, of course, I passed on you, Khun Way make available the underlying commentary. If you visit Hugh Hendry official, you will see the underlying written paper that we sent out to clients. But we were noting that in this kind of in the comedy of 2002 you know, we’re kind of economy in America is recovering, but you gotta remember like the sisters was the first radicalisation. We’ve gone from Fed funds rates of 6.5% although we don’t have 1.25%. I mean, that was a big whoa fighter. So monetary policy is very much in its ascendancy fiscal policy, the Yadana 1% GDP expansion. Nothing kind of like in today’s world they were coming back towards as Thie year approached. It is end coming by with the ambition to spend another 1% but still kind of nothing. The dollar, given not big tsunami like cut in rates, had weakened and fall in the best part of 10% so we kind of know there’s a lot of liquidity in the system on, like I was saying, It’s it’s very unfair. The monetary system, like money, really flows to where it’s most required, which would be to say, distress businesses and distressed households on instead, that liquidity that’s coming out of this faulty plumbing system, if you will, is going to cons like me on is going to things which are inflating, which were in acid acid price up trains on back then That would be soft commodities. That would be the FX off commodity nations like New Zealand, like like Australia. That would be the universe’s the dollar on. That was soon to be the Galactica Fund. You’re to see kind of mine, improve sentiment, to speak and like feeling a little bit more confident in myself because we’re beginning to have some risk on the pole for you. We’re running 120 gross, with 80% of NTV being dedicated to the belongs and just under 40% to the shorts. When I look at the short names, I really can’t make no rhyme or reason, Teo, why we hot those names? I guess when I look at the long short, you could kind of say what was appropriate is that we hide something off an RV trade. We were long commodity cyclicals on. We were short large carp on dependable staples. My problem. Bolivia don’t see in that position today as well. But the big change is the gold Boys. Aaron Time Gold shares have entered into the thie. Eclectic. A hedge front on We’ve got the blue chip names. So we’ve got 5% in new more. We have five per cent in gold fields, Slightly larger position in a shanty. We got 2669% position in the CR B commodity futures index. I had talked about Packer talked about picker being up. We have 5% in Durban Deep don’t burn deep to the uninitiated in lots. In there is a term A Norman is a Norman, which is to say what is it is. It is to say that the name tells you something. This there’s always a giveaway, if you will. On what was the name telling us here? This was a profoundly deep South African mine. I don’t think I ever met it. All I heard was a very deep mine. It was pretty much all the time. Unprofitable. But if you were to kind of, like, multiply the gold price by two or three X, the marginal gain and profitability would be stark. And so a stock, which was probably honour you would discover that you were kinda on two ex. Nothing like doubling the gold price. But on 12 x, you were probably buying this on a 50% plus earnings. You on. You default be unsustainable. Never. The price will move higher. But I want to say this. Remember, this is from a kid who was school by this Adam brother. Very Edinburgh based. A very, very diligent, very professional. Very big doer, analytical house. You know, we had the time we controlled risk by investing in superior companies, and he and I was to sink returns by very much. Unsub ut in Scipio Companies buy. I guess I was pursuing. I must have read this in one of the disorder or spooks. Once you have a narrative, you go to Cannes, a bar bell into the best companies. In case you’re wrong on the very worst companies, in case you’re right. Uh, not always stuck with me. So 120% growth equity on remember the really the qualifying fighters. People would think their short. I’m going to go on, they’re going, They’re going to make money from their shores when they lose money from the Longs and therefore they’re diversified kind of market neutral. In my experience, there was always those moments where you’re lost money on both sides. And so really, it was better to look at your record book as being just 101.2 times. You were geared long, if you will. That’s a very pessimistic way. But it’s kind of for someone who was seeking tenure for someone that wanted Toa last for someone that wanted the opportunity to come back and do this thing again and again. Again, I found thinking about in those towns was helpful. Um, so 120 then we’ve got 60% in currencies again, pretty much in the equity line. We are like I said, long cyclicals, shore staples in the currency. We are long commodity producing nations like Australian Museum, predominately New Zealand. At this point on, probably short those FX crosses. Where is the country like the yen where they’re having to predominately import and import commodities. And so the terms of trade are against him, but 60% so it sounds large. It sounds like it’s half of our gross equity, but but currency? Paris The daily price volatility is very, very low, certainly in comparison with equities. What it was in a heater off quantitative easing the volatility of all risk assets has has fallen. But that said, a 60% allocation to FX on a risk adjusted basis would probably be no more than about 2025% of any V. To put it in some context, a 5% position in dark deep would be like it 25 30 if no bigger NTV position in a currency swap. Like so we had, You know, it takes a lot of swagger at the bottom of the market. 5% of your NTV invested in Dar Pindi, of course, turning to the stock inside stock in sight. Really, I don’t want to spend too much time to fight. I think I’ve got no more than a minute or so, but we had body kala boo, but calibre was very much it’s like arm Saddam commodities. It is another very, very solid, boring business cyclical business, a business with uneven progression in earnings because they were always struggling with what’s called the refining. Which of these guys are wass largest producer of cocoa and effort? You’re you know you’re there tonight ordering your your dog chocolate. Most likely the cocoa came from these guys out of West Africa, but with that refining margin, your earnings every to every cycle would be much higher. But like trying to nail it to the court, the annex, like a gaming company, entered the game company built like a bedding company, pops erotic, and therefore the stock was afforded and announces you would have I want to see 15% or price an anger issue of six for me. I’m actually I have to say I am a little shame faced because I was typically, but it was a set up. What I’ve done is not only have I shown you the fight, but I think this was a nine biker from where we bought it. But a wrench point was ordered for me because typically I was buying new highs. I was buying up trends and here I am, doing the opposite. I got really, very lucky. Where with this stock, Because the tent because or these voices in my head that I alerted We’re really not giving me a message. It was more, I think, the intelligence team from my analytical department that was saying, Hey, look, you want commodities, you want explosions to soft commodities. This guy there’s body calibre is a very, very sound very, very cheap company which will deliver. But so what I’ve done is to share myself like when you how it looked, not today looking by, but at the time. And you can see I think the only defence for my purchase was that it had broken is dying trend. But this was not the strongest base point from a technical perspective for me to launch an investment. And maybe that’s why because, you know, here we I think last week I’m Saddam commodities for the 20 Bugger. This is a nine biker. You know where you didn’t? You kind of made 8% after fees compound over 15 years. So maybe is a little bit of risk. We might touch planets. I’m sure will touch upon this at another stage. But my good friend Steve dropped me. He christened me the Plasticine micro trader. I would kind of break my narrative down into hundreds of little positions, like a centre Pete s. I always had feet in the game, if you will, but I could explain my position was Molly, but I could expand and I could take down. I could change my mind. I could chop these positions out because they were kind of small. But of course, the smallness perhaps prevented me from harmlessly bigger gaze questionable in my head. And then finally, you know, when I think about this Piano ho, here we are again entering the third act in Morton Markets in 2020 again, I would reflect on 2020 vision. But let me give you a little kind of anecdote from it. Wasn’t 2002 probably 5 4006 on guy I’ve been asked to present at a Russian investors for him which forward? Close on the use of doubles. Andi, I had you, like in typical fashion, had made a name for myself, probably by being rude, but I have been invited to this Viper party overlooking Red Square. And there, would you believe, is my father, Jimmie Rodgers. Nassim Taleb. I mean, it was just an astonishing evening and I was bumping off. Hm. I have Bean order panel with nothing. He was not interested. I was like a nice guy I loved. The book is like, Go away. Okay. Jimmie Rodgers. We’ve always had a love hate relationship. He’s that kind of guy, Um, and Mark the most over sex financial brain in the world on so I would have not seen after the presentation. It’s kind of like me. Come up. What is your name again? I say, Hugh Hendry, the Ouija in weeks and you walk away. Then he combined Eating easy. Tell me again, what is your name? As if we’d never had that conversation, I would be sitting with Jimmy with all these kind of kids. And Jimmy’s a Gordon and Jim and you know, he was again. He’d bean on the commodity market and he would open up his his such I condemn putting out like a silver quiet. You should buy silver or in an industry supported you bring her a socio sugar. Say she was going to the moon and then in another pocket of gold. And I came here like, really? What else? What if you got in your shoes? That was funny. And on dMarc was just in the mark. Mark Farber was just looks like all that’s missing is the white car sitting on is sitting on his love. But he left shortly afterwards, I think, to pursue other and endeavours in the Knights of funny times. The boom market was fast approaching on my losses. We’re recovering relative to the markets. I hope you will join me next week when we move into the new calendar year year of 2003 which ultimately despite some hiccups, ends in being a great triumph on, perhaps secures my tenure, but a little while. So, uh, thank you very much for listening and goodbye from ST Barts.

Okay, this is not a rhetorical question. This is meant to be Confessions Part Two, where I will be discussing, what am i discussing? I am discussing the second month in the life of Hugh Hendry. That’s me, as a global macro hedge fund manager. Confessions Number One, I hope, I understand, 3000 people, thank you very much, have downloaded the podcast, and many others, I guess have witnessed me on my Instagram. Again, thank you very much those of you who made it to the end, I feel very self indulgent. But here we are towards the end of the day in St. Barts, is ten past five, I hope you can hear me and yeah, the Odey as it was, I was a partner at Odey. At Odey, and I mean, my god, talk about pressure people. Blitz, I’m quoting from the document, here we are replying, I’m on time. I hope I can keep this to 10 minutes. For the quarter today and so that’s for two months into the three month quarter and the stock market is up nine and my fund is down 4.8% Oh la Vash, for the month it was a stock market was up nearly 1% and I was down eight basis points those call them flat in terms of my investment management report, kind of blob but it actually is not blob because it’s the first indication that I say that we’re building a short position against the dollar. And as you know, the other night, I was putting out some thoughts, really some contentious posturing on the dollar on the desire of the Fed to stop the dollar rising, are we living again in a moment of dollar debasement and in those tweets, I was kind of, again, going back in time to this moment to you at the end of 2002. As we looked ahead to remember, Eclectica, was meant to be I want to say that we spend our life, life is, is capricious, the writer, like unexpected things happen that people say, but who would have thought that in the days on Eclectica was kind of like me. I was the guy that kind of thought that and I never could I monetize those eclectic thoughts and posturing. So I was accumulating a short position against the US dollar. And what was I buying, I was buying commodity futures, principally the CRB index and you see that I touched on charts of where the launch of Eclectica was easily what turned out to be the bottom in the gold price and these are the CRB, these commodity research charts, and what do you see? You see a long descent, the descent into hell in terms of the bear market, you can see that in terms of duration it was long, I want to say more than a decade but let’s say a decade and then, what you see was that the cities started to stop falling that it no longer lost its purchasing power versus the risk asset alternative risk assets like stocks. Of course the reason for that was that stocks had then collapsed during the sell off from late 2000. Politically the technology sell, but regardless, stocks didn’t and that was a mess. And that was like dropping the stone in the pond which had created that curiosity in my mind to know more and to set my research team out there to ask questions and try and legitimize whether we could really come in and hold a lot of these commodity futures. In terms of, I’m looking now again, I’m looking at the paper, I’m looking at holdings that the top five longs and shorts is, what can I say? is better than last month. We actually kind of have positioning the previous month, again is kind of normal is kind of what we don’t show you in these things, but at least you can see the tiny marriages like 4%, in the CRB contract for January delivery, 4%? Yeah, big deal 4%. But I can assure you behind that would have been like it thought was a little pitter patter commodity type plays. I hope you can hear me, it’s kind of is windy out here. And of course like a moron I forgot to turn off the sonar system realistic to lease scratch Perry to keep the mood. Okay, I say that and then miraculously the music stops, which is probably my daughter’s, we compete to be the DJ. And, but really the thrust and if I’m going to keep this short and I hope the volume’s stays out, I promise you I am going to get a microphone. But the stock insight was Amsterdam commodities. And there’s many things, there’s principally three trains of thought: there was the analyst, my analyst, George Lee, I want to talk about George. So let’s… what are the three? There’s George Lee. Let’s have fun about Amsterdam, Amsterdam commodities. And let’s talk about this notion that is: is there something better than great sex? Question mark. George Lee. I hire George. I had a very bizarre selection process. George came to me and I charged, I mean, my God, he just was this piece of rock that have yet to be chiseled yet to be framed. He came to me I want to say, like, just out of all proportion from the graduate recruitment cycle is like, yeah, I kind of should have done this earlier. I kind of forgot. You could say complacent, but you could just see there was an immense mind working away. That was just abstract from a real life. And that’s kind of what I was seeking. So I hired George, I reckon, I hired the people that no one else would hire but well done me because in this instance, George, who worked with me for nigh on 20 years was just an absolute intellectual rock. So let’s have fun with Amsterdam commodities. And here is a question. What did I do in Amsterdam, when I discovered Amsterdam commodities? Because I fear perhaps too much time was spent in the cafes of Amsterdam, because there really really was very little to hang your hat on in terms of why you would buy Amsterdam commodities. Memory serves me right well I’m looking at it, at the noise, it traded it so it made its own market in literal commodities like not next pepper and other exotics and then it could kind of play around and broker between rubber and probably palm oil, something crazy like that. So, remember I, in my head this paranoid schizophrenic, the voices are saying there’s going to be a commodity boom market. It’s incredibly hard to find equity exposure because stock markets investment banks just present you the kind of the, the Zeitgeist of the time and what is very going to become the Zeitgeist. And but all we could find at this point were offers and like strange creatures like Amsterdam commodities, strange in the sense that, like no website, absolutely zero interest in the stock market, why it was quoted, I don’t know, a nondescript building. They didn’t want to have investors and they didn’t really share that much information. No, you know how to stand for I was many years later, at the height of the bull market, with our investment in the Brazilian sugar company, where I traveled all the way to Brazil, and the mother what watsa refused to see me, see the real vision interview with grant millions. If you want to understand that one better, but I was more forgiving. It was the beginning of a bull market. And like I, I always say I was building the centipede and I needed lots of little positions. So, and what? And it kind of got his act together and it harder now earnings you’d have about 13-14% and you got to, either was it a free cash flow yield of 10? Or you actually got a 10% dividend yield? I’m not sure. I think they were quite generous but in paying it out. Kinda not much. And yet, it just shows you that’s my last point. This point of: is there something even better than great sex? I remember doing this presentation in a crowded hotel, a four year room in Paris, where I now reside when I’m not in Saint Barts and I love the fresh because they just kind of get it as like, you know, I asked, is it a rhetorical question? I asked that question. You know, is there? Let’s just cut, let’s just go back in time. For some of us who may be a longtime for others. You know, I’m sure it was close to the present. And just imagine how wonderful that moment was. And is there something better? I’m going to tell you there’s something better and you could have had a pin ball in that room. And of course, in the veto in the, in this kind of finance world where, you know, the surface layers are very, very thin, and the thing that was better than the greatest l’Amour ever was the notion of making 10 times your money. Imagine like, you bought something for 100 bucks, it goes to 1000 bucks. Wow, that’s hard to beat and remarkably, such is the power of buying stocks at the beginning of a bull market. I want to tell you that by 2010, so eight years or so later, eight years, almost seven years later, and when you look back, this stock had been, if not the best, then probably in the top 10 Rock & Roll list of best performing stocks in Europe for that period. What had happened obviously commodity prices ended it and of course, we then hired the discovery of businesses such as what became the very controversial trader or alarm in Singapore and you had a structural price earnings rerating of these businesses. Amsterdam commodities today, rerated and the problem with it was back then kind of enormous looking at it and be the dividend yield was high, but it could be erratic, once you… and it didn’t matter because it didn’t have a lofty valuation. But once you start putting these things on, you know 15 times earnings, so I said we bought it on and now earnings yield of about 14 so P of seven, but like at a P of 15, 16, 17, 18. You’ve got to have that consistency and predictability, cash flow and payout and Amsterdam commodities is many, many wonderful things even though have a website, but it certainly doesn’t enjoy that predictability. So when dismisses certainly not an expert on it today. But was that better than great sex? I don’t know. See you next time for Confessions Part Three.

Hey guys, Hugh Hendry. As I think most of you know, I was responsible for a global macro hedge fund. I ran it out of London between the years 2002 and 2017. So 15 years, 15 years eclectic by name, eclectic by nature, uncorrelated returns. Was it the best macro hedge fund ever? No. Was it entertaining? Was it uncorrelated? Did it correlate with anything in the world? It didn’t. It was unique. Regardless, and I’m hoping that you will want to hear my story. This is the story of someone growing up with investors with responsibility to write a letter each month, a letter of culpability typically, I’m really sorry I had this great idea. Typically it was… we were just too early. But it was, it’s like, my diaries and therefore is a master class and I hope if you can be persuaded to stay tuned as we go through these month, monthly, so I’m going to give it, we’re going to shoot about 10 minutes. I fear is going to be deadly dull, but there were just so many things happening in my life. You know, I you see the curse was too many interesting things, too many great anecdotes for going to data and showing people and so hopefully we can bring out those anecdotes because this was such an amazing time. Crispin Odey and I was working within the confines of the partnership, I was a partner at Odey Asset Management. And Crispin had for many years been reestablishing his immense credibility after the debacle he suffers way back in 1994 when he got trapped in a position in British girls, I don’t want to get stuck on that. But he could see he was very much on the cusp of, of being forgiven, if you will, and assets were beginning to grow again. But we were managing a very, very small amount of money compared to where the world accords genius today. And we had very, very small tight, very, very eccentric stuff. And Crispin was loath to let me in, he could see something of his character, perhaps, something of his madness past more appropriately in the management of a hedge fund. Remember, he said: no one does. There’s no handbook. It’s like driving a sports car and, like, cuz you want to drive really, really fast and so he’s really worried that to give me the keys to his Ferrari and the damage that I could do, not only to myself but of course to his reputation, that he had worked so fastidiously on trying to repair so that was the kind of backdrop. Why don’t I can plunge straight in because for the first month, and I’d ask you again to remember that most hedge funds fail in the first year. That’s the thing that’s uppermost in your mind. Most hedge funds fail in the first year, is kind of like a restaurant, is why a good restaurant, a restaurant that endures is a restaurant that typically makes a lot of money, like hedge fund broadly today, and in the month of October 2002 I lost 4.8, 4.8, I’m going to say it again, I lost 4.8% when the markets were up, eight, what would we have? At least the benchmark we used was the food see the FTSE all share, which is an equity index. Remember we’re going to be like this: it was like a private client vehicle. Back in the day. No institutional investors, family offices were the investors. And it had been a great month for equities. And there is scant detail in this report. I have copied the report and you can read the report idea on leisure but the media doesn’t say anything in terms of marks out of 10, very much one out of 10, would you believe I was almost 102% gross long? My shorts, but what you think, 40% short, my shorts were less than 1%. So I was 101% net long. The market was up 8% and Henry was though the best part of 5% and there’s no mention to whatever it was that was eating away at me. The only hint is in the opening sentence when I say the European Central Bank, got it wrong. How often have you heard me say that? It began in my first letter. The ECB had last cut interest rates almost a year before I had launched this fund, but it had taken rates down from where the 3.75% and it cut rates by 1.5%. Or actually got quite aggressive to the tail end of 2001 with almost like monthly cuts, but from November 01 nothing, absolutely nothing. Whereas the Fed have been very proactive. And so I imagine when I see those returns, I have to imagine because it’s not in this report, but I imagine and forgive me as I’m moving around, let me get closer. I imagine that I had a very large interest rate futures position, which was with little life left, which was there anticipating that we would get rate cut, no rate cut, no P&L, and probably we were playing something with time and so we probably lost money for the time lost on that adventure. And of course, I really have ironies. I think we were, it was December before we got the next markets, equity markets we’re clearly anticipating. And then what I want to do is that a nice reports we always keep and we attempt to give a stock insight or a trade insight to try and explain the nature of the thinking to try and be transparent. And when I see the stock or the stock inside square, these yellow pages, these classified directory books and when I look at the top long holdings, we were pretty much I guess let’s call it the Ben Graham buffing on the cigars. And the last embers of the great TMT Smash. We were buying stocks which had fallen 80 or 90%, 80 or 90%. And the one we really have reference to in the report was in Nero. And I’ve, I’ve checked before doing this in Nero is still listed today. That’s not safe much. And you set a really, really tough time. So back then, it had been a darling, back then it was going to use this cash flow and it was going to be an internet platform. It didn’t work out. It is a waste of a huge amount of money on adventure in Germany, but it closed it and you still Yellow Pages for like a utility cash generating thing. You really still didn’t have Google. And we all had these big thick books. So if you’re old, like I talked about this stuff and with the cash flow so you take the free cash flow so, you know you’re taking care of any movements in working capital, you’re looking at the kind of capex you’re trying to normalize capex depreciation and you’re figuring, trying to find the cash flow that you could, you could, it would be attributed to you as the equity investor, having paid out the stakeholders, tax to the government interest payments to the banks to the debt holders, like maintaining the nature of the business in tax or investing in the business, the creditors of the business, that’s why we look at working capital, and after expressing wherever that cash flow figure was, these are the market capitalization. And back then, we were attracted by this 10% ratio. And we hired an investment. Knowing me we would have had a very large investment I was like, I always wanted to see, I was like the center. I wanted to have an idea and I wanted to have that idea expressed into like 100 iterations. Because I was constantly, the book, we were constantly, you know, during a day you had to write, getting excited and getting sentimental but my trailer sub psyche with a big boo, like Charles Dickens story, very Victorian, and you handled all of the trades, I want to say we did about 20 pages of trades every day. If you remember that be not I think Danny Boyle made a movie about it. About the climber in some US state and he gets his arm trapped in a boulder, and he’s on his own, and he can’t free the arm and he’s gonna die. Unless he gets his arm out and Bob so Louis get his arms by cutting his arm off. And understandably, having only two arms and two legs, two arms, he procrastinates like I really want to cut this off? Sure I’m going to die if I don’t cut this off. But I’m gonna die if I don’t cut it off, you know, back and forward. And so for me, I didn’t want to have just two positions, I was 100 positions and I was selling them every day and buying them back every day just as I kind of try to gauge sentiment I try to gauge where I was in terms of my understanding. Remember, I was always kind of like, I was looking at the charts. The charts were like sheet music, and they were conjuring up images. And then I would have this really small pool of talented individuals who then triangle and corroborate and legitimize what I was feeling coming through in these chart expressions. And hence we came back with the cash flow figures. However, to wind it up, a needle was a dying business. I am, I’d have been better placed elsewhere. Was very much a distraction from my interest rates, which were the big story, they will go on and we’ll discuss that. And I started the fund pretty much at the laws of European equities. But it took us a bit like gold, and we’re going to talk about gold in the next series. But golden equities kind of were very, very volatile and kind of went sideways for the next three or four months. And it was a challenging baptism of fire. But between the end of 2002 and the middle of 2005, European stocks doubled, kind of went back touch the high and then the Euro, I think matched up but in terms of like, okay, it’s the market doubled. That’s good. We find a stock and it doubled. That’s not great. So per business that we bought, should have done better. And did I mention that my son was born that month, my son was born with silent reflux. So he was a baby who cried every day of that month. And my wife who cared for him, cried every day because he was crying. And with me being down 4.8% in the market being up 8% believe me, I was crying. So, no more tears. If you’re interested, I’m going to do this exercise again. And we’re going to talk about November 2002. Thank you very much, everyone for listening.