Markets in Hindsight

It's called Hindsight Capital, and his strategy is exactly that, and we'll talk about all the trades, all the wonderful trades that he made this year. But first of all, Donna, I gotta tell you, I was a columnist for a long time at Bloomberg, and I think every columnist dreams of one day being a hedge fund manager as well. And I actually wrote a column one time about an imaginary edge fund that I made up to try to

explain all the goings on in the markets. And I gotta say, my bosses looked at me like they thought I needed a psychiatric evaluation. It didn't go over so well, yeah, are you sure that's the only reason they thought that? Well, yeah, it might, There might be others. It's a thick file. It's a thick file. A couple others. But our guest this week gets away with it somehow. So why don't you tell us who's joining us this week? He does so. Our guest is John Author's he's the senior editor with

Bloomberg Markets and he's the chief investment officer of Hindsight Capital. John, Welcome to the show. It's sitting sitting in London at this moment, which is very very pleasantive now rather a bit of a ghostly place with the pandemic again, Jed, I was going through Hindsights Capitals trades of the Are you guys knocked it out of the park once again? What can I say? Hindsight is a very powerful investment strategy, but I think my favorite is used cars. You got

into the used cars business. Tell us about that a little bit, right, But this is this is obviously I only have practical data on the on the trades that have been placed in public markets. But in the run up to the the New year was buy up every fleet of rental cars, it could possibly lay its hands on cornered whole lots of used cars. Uh. And as we know, the great boom in inflation this year was quite something most you know, the prices of rental cars and of used cars went up far more than for

much of the year. That was one heck of an investment. So I forgot to mention we also there was also the chartering some Chinese container ships during the Pacific route. There there there their rates at one point quadrupled. Really thinking out outside the box there, John, You know, I I gotta say, I've met a lot of hedge fund managers who remind me of used car salesman. But this

has taken it to another level. Yeah, this is this is but this is the kind of innovative way that that you need to think these days because private markets in general are so efficient these days, it's hard to beat them, hard to make real money unless you're armed with hindsight. Well, John, speaking of China, you just mentioned some of the shipping boxes that we've seen basically all year.

Can you talk about what we saw with China? Because I was working on a story about some of the things that people would like to leave behind from and one of them was just Chinese equities. One portfolio manager's book with said I really wish to leave that behind. So can you tell us what you what you found with China. You could see for a number of years that there there was a confluence of factors coming together.

One was that China, obviously last year really had a very nice boomlet in equities because for a while China was doing better than anybody else coming out of the pandemic, appeared to exit the pandemic before any announce You also had the fact that we have all been all been very well aware of the credit problems built up or China by the way it had over expanded to to deal with the GFC back in two nine. There was

plainly a come upance coming for that. And by the by the beginning of this year it was really clear who c Jing Ping was, what his attitude to the private sector was. This was the year when he finally really clamped down on that the what is he saw as the overmighty private sector. So there are a couple of trades that hindsight put on First, obviously, there's no money to be made in China on the on the

long side. But if you went along in the market that is doing best out of the decline of China as a big exporter, which is Vietnam, which that's what I still think is the world's best named index, the ho Chi Minh Index, very unsporting of the Chinese, not to rename the Shanghai composite, the mout say Tongue Index.

But there you go, so long hotel in index. And then the best way to really get bank in the bucket of shorting China was through a d R s. There was American investors who really got fed up with Chinese equities. So if you short the Bank of New York Chinese a d R index, put those two traces together and you make a hundred and that's not bad. Hundred thirty will take that as future investors of Hindsight Capital. John,

that's not bad. Yeah, I'm curious about China, John, Um, you know, and maybe we'll have to wait till New Year's Eve of next year to find out how Hindsight played this. But yeah, there's this, Yes, there's the sense that you know, she Jun Pink kind of ripped the band aid off all at once. When it comes to regulation.

That got it all over with that the worst is behind us, and now you can kind of it's maybe safe to go back into the water in China a little bit that you know, they're sort of turning the other way and we'll sort of stabilize prop up the economy. Is it. What do you think is a two yearly to sort of reverse that trade? Well, it's too early for hindsight to let you know about. I think. I think what's most what's most concerning there is is what

happens with the property market. China has decided whatever happens, China is not going to have its own GFC, its own Lehman crisis, and so there is a determination to mop up the real estate center, which has obviously been very badly over extended. If necessary, China is going to you know that that's going to involve losing some money, some more money next year. It's involved losing a lots of money this year, which was actually another hindsight trade.

In fact, if you this this is a classic of seeing what is cheap, remembering that the biggest determinant of how how any investment is going to do is how cheaply you buy it. So they went along the Bloomberg US Office Reat Index, which was seriously bombed out at the end of last year, and shorten the Footsie Abbas Chinese High Yield real Estate Index. And that made you exactly which isn't bad in a year hindsight only deals in triple digit returns that it seems like, well, unless

unless it's army is really twisted. It's it just it prefers not to bother with anything that's that's only in double digits. Just to stick with international markets. I know you were looking at Turkey and the collapse of the Turkish lira. I love reading stories about the lira because there's always the clause that Turkey's president ur Twan has this sort of counter to what you what regular economists believe about interest rates, and what how cutting or raising

interest rates ties in with the economy. So can you tell us what you found about the Turkish lira? Well, he is indeed, in my day job of writing about macro and cross assets and stuff, he is God's gift to columnists because everybody else is having an argument about when and how much to raise rates, and he is the only person on the planet who actually seriously thinks it's a good idea to cut them at this moment. The currency market definitely doesn't agree. So you had a

series of four rate cuts by Turkey for a while. Amazingly, Turkish real rates, if you subtracted the rate of inflation from there from the bank rut, were actually not as as they were in the States. American rates are stunning lee accommodative, stunning lee easy at present. But by the end of the year they had managed to cut even lower in real terms. And what Hindsight does every year is that it moves its office. One of the greatest

deliverers of returns in markets is money illusion. To denominate yourself in a weak currency, you're going to make yourself look much better. So they moved to a standbol which is I've only been there once. It's a wonderful city. The S and P was up twenty four in dollar terms, but in lera terms it was up two when I last checked. Another brilliant trade. And I know you're dabbling in your You're dabbling in the h the digital asset markets.

John Long Ethereum shortsilver. Is this as simple as it seems, is crypto of the new precious metal for those worried

about inflation and money supply and everything else. Given the kind of desperation, you could see that the you know, the the techno bros, of the crypto bros, the excitement that was brewing over meme stocks at the beginning of the year, whether you know, the Hindsight's macro people haven't, unfortunately told me whether whether the crypto crazy is here to here to stay, But it was obvious that there was a lot more juice to squeeze out of crypto. And that's a lot of people really do see it

as a substitute for precious metals. You you can't actually wear the necklace made out of ethereum or bitcoin, or you have a wedding ring made out of it. Still people see it as some kind of a of a substitute. So just to juice up the kind of money you made in ethereum a little bit more, Hindsight financed it by shorting silver, which is the world's which actually fell

quite a bit while the etherorum went up fifold. So that the latest figure I have in front of me, which may well be out of date by the time we broadcast this, is that that that trade made six shorting silver and putting it into a theory. Six. Hindsight is a powerful investing strategy. It really the growth value you know, you name it risk parity. None of these strategies are going to do as well as hindsight period guaranteed. So John, I know one big thing with cryptocurrencies this

year was their energy use. So I'm hoping you can tell us about the clean energy sector and what you found there. Okay, this this was fascinating. You had a global economy that was still really being hit by all the reverberations from the southern stop in the pandemic, particularly in Europe. You also had the cross currents coming from Vladimir Putin in the way that he was trying to assert his country roll over Europe or assertin his power

by air by limiting supplies of natural gas. And there is this discovery that it really was important to have greater supplies of of traditional energy in stock while the

transition to newer, alternative, cleaner energy was underway. So the one really successful trade was to go long natural gas features, particularly gas natural gas features for the British and Netherlands markets, while shorting the selective solar power index and index of stocks that invest inlar power, which actually fell quite a bit last year. The last time I checked that trade, long natural gas short solar had made just slightly less than seven for the year, which again is better than

a poke in the eye. The other big investment that you could see coming a long way away was that oil was asked officially depressed by all the fallout there had been among OPEC plus last year, and that there were now supply problems as demand was for for oil was beginning to take off. And the way you make a really good geared play on oil is through the expiration section that the drillers. Meanwhile, clean energy as a whole, people were so excited about it entering this year. Again

it was just a straightforward Benjamin Graham trade. Really just buy oiled it. There's long oil, expiration stocks, short b SMP, global clean energy, and that trade made about a hundred and thirty not bad, not bad, not one of the best, but that's they they all count John, you know, almost a sucker for a good old man movie reference. So I was I caught my eye. The I'm not dead yet Monty Python trade also notes the at least we reopened a little bit trade talk to us a little

bit about that. One another good re trade for the year. This this is one of this, This was one of my one of my favorites. I'm not yet is equote from Monty Placing and the Holy Rail. Yes, and I regarded he is going past yelling bring out your dead and one of the eat Yes that did really badly

this year. It was the ticker symbol empty, which was which is the decline of the retail stock trade, a decline of the retail brist and more retail, which was designed to short the companies that you that you go to your mall. But by the end of last year that had been taken to an extreme. People were expecting malls to be going bankrupt, left, right and center. Meanwhile, there was a belief that internet entertainment was here forever and people have got over excited. There was a classic

pandemic trade. So all you needed to do was bet that we would at least that that there was at least some life left in the old concept of the retail mall and that we would at least reopen a bit. So if you go along the Bloomberg Regional Mall reat Index and short the s and p five under at home Entertainment Index. When I last check, that had made

a hundred and thirty three for the year. And at the same time we had exactly what happening with our US office property reets office property is it's another classic story. Everybody desperately got out of office property reets last year because but we all know why, we thought that everybody was going to be working from home forever in a day. It's still not clear exactly how much we are going to a long term swards working from home, but it's plain certainly we know Bloomberg there are a lot of

advantages still too to working in an office. So you know, office routes are still not back to where they were pre pandemic. But if you bought them at the beginning of this year and coupled them with a short in Chinese high yield real estate, which finally had its great moment of destiny this year with the ever grand incident, then that made just under one when I last checked.

There was money to be had, even in contrarians really need, really can make a lot of money if you've got the the interestinal fortune, fortitude to do it, or of course, if you know the future that helps to Jed. I was prized when I heard that Hindsight's portfolio managers were not allowed to buy game Stop, I gotta wonder about your chief risk officer. Did I assume you fired that cheap chief risk officer over that? But talk to us

about that? Well, then basically this is just a standard rule that if hind State is allowed to invest in single stocks, then forget it that the kind of money they're going to make is just infinite. So you know, the regulator just won't let them play that. However, the c I O DIDs want me to say it, even though as we know, game Stop has come off a lot down by more than from the top. How do you bought James Stop on January one in lira and held one Turkish lira would now be worth seventeen hundred

Turkish lira. So you know, there was a lot of real irritation about not being allowed to to dive into game Stop. But there you go. And how happy were you to not own Cathy Woods arc et F Can you talk about that because that one was a big name in but it hasn't done as well. No, not necessarily because there's anything wrong with Cathy Wood strategy. It was just there was something wrong with piling into her

her fund in the way that people did. It's a classic issue that has long been there in the mutual fund world as well. If lots of people give you more money, you have to deploy that money somehow, and generally speaking much harder for you to to make the underlying portfolio work really well. There had been so much of a excitement around Kathy Woods. The amount of Kathy would merch that was available at the end of last year was just such an obvious scientist short arc. You

don't hindsights. Managers don't quite understand how people didn't didn't get that, so all you needed to do. You know, it's like if the CEO has just opened a brand new, gorgeous new headquarters, you short the stock. If if you can get the c I O S face on a T shirt, you probably don't want to be in that funds just at the moment. So if you go long spy, it's not the greatest trade. But if you go long spy,

just boring, straightforward, just go with the market. Short arc sixty when I last checked, which is you know, respectable small potatoes behindside capital. But it's again, it's a lot better than a boken the eye. Yeah. For the mirrormortal uh fund managers who do not employ the power of fine site that that's nothing. I thought when Cathy, when the ARC site offered a backpack a bag, I thought that was a signed to for the bag holders. You know that that you don't want an ARC theme bag.

You could almost directly say you are going to be left holding the bag one more. Before we get to the craziest things of the errors. V Donna calls them the weirdest thing, or is Down calls them the madest thing, which might be my favorite pressures of pandemic life. Long coffee short beer stacks. I usually go long beer post market and then long coffee in the pre market the next morning. But talk to us about this trade. Uh. This this is a trade that is quite something. Basically,

coffee is benefiting from supply chain problems. You have to bring it in from all kinds of interesting, faraway places and there is a lot of demand for it. Meanwhile, basically, because drinking together is still not back in full swing, people tend not to drink so much beer. They tend to drink other things if they're not if they're not

socializing in big groups. So, given that things were not getting back to normal as many had hope this year, if you went long coffee futures and shorts s and P five hundred brewery sick to that made you an amazing hundred and fifty. It was. It's an extraordinary thing. But we we are all at this moment desperate for caffeine and less desperate for alcohol. Very interesting, very it's it all. It all plays out in the narrative of

the year end letter. And if you haven't picked up on it by now, hindsight capital exists basically only in John's imagination and UH and in the year end and the but real, the real thing is the year end Letter to Investors that we all look forward to UH as one of John's final columns columns of the year, and it's just a great way to recap the year. John has been doing it for years, and some way John will figure out to really employ hindsight in the

capital markets and then we can finally retire. I think exactly exactly I'm looking forward to that. Tieden up your straight jackets. It's time for the craziest things we saw in markets this week. Well, Dona, let's get to those crazy things. It was a crazy year, a lot of mad things, weird things in the market. What's what's your pick for the craziest thing all year? Well, obviously it has There's just so many things to choose from this.

I think the staying power of Game Stop investors, AMC investors, and me still getting text messages from friends asking about game Stop and all these other things, that really is. It's amazing. But I'm going to go with Facebook's name change. So if you remember a couple of months ago, Facebook

changed its name to Meta. They're also in the process, I believe, of changing their ticker, so there was some confusion, even with investors putting some money towards an e t F that had the metaverse ticker and and theme on it. So I think that's one of the most strangest, weirdest, maddest things that we've seen, just because everything that the company has been going through, and we'll see how well

it sticks. I think even still in stories people say Facebook parent Meta Yeah, so it's not really working yet in Google parent alphabet. We we can't give up those all that is a good one. I'm gonna pile onto your meme stock thing a little bit to me, John, It's it's funny how often professional fund managers such as yourself are compared to are compared to monkeys. You know, it goes back to the Grandam Walk on Wall Street.

Bert Bert mart Peel, who I believe you correct me if I'm wrong, was the first to say that, uh, you know, a monkey throwing darts at a newspaper stock listening page could probably equal the performance of um, your average fund manager. Shure enough. This year, not so much monkeys, but they're Simeon cousins. The apes really took over the markets. You had the word Apiacht Club, you had the amc uh long crowd calling themselves the Ape Army, and that that a bunch of other APE n f T projects.

So year of the Ape, I think Planet of the Apes, and I wonder if it goes back to Bird's monkeys throwing the darts. Maybe there's a connection there. I don't know. But what's the beddest thing you saw this year? John? I'll give you to one meme related and one non meme related, and the meme related one is obviously the greatest meme stock of all is tes La. Obviously has lots of wonderful things about it, but it does behave

like a meme stock. I think the fact that Elon Musk has now become the world's richest man, when he spent a lot of time on Twitter advertising that he was going to set up in a new university called Texas Institute of Technology and Science, and he was really looking forward to selling people the merch with that on

his shirt. The fact that somebody with a sense of humor that's still stuck at the age of about twelve can become the world's richest man, and that so many people can follow him in such logical ways, such a passionate way is mad, and it's my opinion it's truly mad. And not only that, but also to start a Twitter

we're with you, know, Elizabeth Warren. Imagine if you know, if if I told you a few years ago that the richest man in the world would be fighting on Twitter with one of the most powerful senators in the US, I don't think anyone would believe it. I think it sounds like something out of hindsight Capital's letter. But let's figure out a way to play that trade. My final other mad thing, which is instant with the benefit of hindsights and does come with it with some frustration, is

that this year, I please doesn't always happen. But I did get one really big macro coal really right, which is that if you can see that those right, januine pepparty. I did think there was a very serious chance that inflation was going to take off this year. Clever, clever me. And therefore, of course, as I could see that inflation was likely to take off, I therefore thought that bond deals were going to shoot up through the they had to do if inflation is gone. So I got the

macro call right and the market call. Even though I got the Macro call right completely wrong. I would like to think that was crazy. It's probably more something else. But yeah, well I don't think you're the only one who got those those one thing right and the other thing wrong. I was that was a tough one. I think that was a pain trade for a lot of people, Yeah,

including me. But with that, what what a year? John Author's privilege and a pleasure to have you come recap the year for us and can't wait to see all the great trades that hindsight places for two. Of course we'll figure out what those are at the end of the naship. They're not that's not going to be known until the end of next year. That hindsight always really really let's see about not letting it not see anybody know it's trades in real time with it all makes sense.

That all makes sense. Thank you John for joining us What Goes Up. We'll be back next week until the You can find us on the Bloomberg Terminal, website and app or wherever you get your podcasts. We'd love it if you took the time to rate and review the show on Apple Podcasts so more listeners can find us. And you can find us on Twitter, follow me at Reaganonymous. The Dotta Hirich is that theill Dotta Hirich. You can also follow Bloomberg Podcasts at podcast and Thank you to

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