Brian Hirschmann: The $6,000 Mother of All Gold Rallies
Tom welcomes Brian Hirschman, Managing Partner of Hirschmann Partnership. They are known as the “World’s Most Bearish Hedge Fund.” Brian says there is some truth to that statement because they are bearish on many sectors.
Brian is concerned about US government debt levels as they will soon reach 144%. Those levels are hazardous as almost all countries tend to default around 130%. The only modern example of a country that hasn’t defaulted is present-day Japan, but even then, it’s only a matter of time. Today, both bonds and stocks are ignoring the risks of default.
He discusses how the Fed conducts it’s bond purchases and why they are “the world’s greatest hedge fund.” If the US government has a debt crisis, he believes that could lead to hyperinflation. Not only is the United States having massive debt problems, but so are most countries around the world, including other central banks. On top of all that, China has significant imbalances, overcapacity, and mal-investment. We could have a situation where a crisis spreads from country to country and region to region simultaneously. This period could make the first half of 2020 look uneventful.
He compares the global economic policy of suppressing financial crises to putting out small fires whenever they occur in a forest. Eventually, fuel (debt) builds up, and the fires become uncontrollable. Keep in mind the next debt crisis could occur at a government level, and then they won’t be able to bail out the banks and private sector. Instead, you might see austerity measures.
He believes the next inflation crisis will be worse than the 1970s. He discusses how high gold could go in a crisis and the best ways for investors to protect themselves. Brian talks about the advantages of smaller mining companies in terms of valuations than those bundled into ETFs.
Time Stamp References:
0:40 – Why they are called bearish.
1:30 – Country Debt to GDP and defaults.
5:20 – Fed printing vs. borrowing.
10:40 – Treasury yields and bonds.
12:00 – Banks, the Fed, and lending standards.
13:50 – Pro Fed/Dollar arguments.
17:10 – China, debt issuance and systemic risk.
22:00 – Government debt reaching a breaking point.
25:00 – Gold mining ETF and valuations.
27:45 – Determining value with miners.
29:10 – Warren Buffett discusses debt risk.
Talking Points From This Episode
- US and Global GDP to Debt Levels
- Why the next debt crisis could be government debt.
- Risk of a global systemic debt crisis.
- Gold and miners.
Brian Hirschmann, CFA, is the Managing Partner at Hirschmann Partnership (HP) launched in 2014. Since its inception, HP has outperformed its benchmarks by an extremely large margin despite being the “World’s Most Bearish Hedge Fund,” according to ValueWalk.
Previously he was an associate at Goldman Sachs Principal Strategies (GSPS), a multi-billion dollar hedge fund whose alumni include Robert Rubin, Tom Steyer, Daniel Och, and Eddie Lampert. After GSPS, Brian returned to Los Angeles to join Hotchkis and Wiley Capital Management and where he was an equity-owner and made over $1 billion in long-term investments.
Brian graduated with distinction from Yale, where his investment philosophy was strongly influenced by Professor Robert Shiller, one of the few to predict both the dot-com and housing bubbles, and by his senior essay advisor, Professor David Swensen, Yale’s legendary endowment manager.