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Brian Hirschmann: The Most Dangerous Time in Financial History

Tom welcomes Brian Hirschman, Managing Partner of Hirschmann Partnership, also also considered by ValueWalk to be the “World’s Most Bearish Hedge Fund.” Brian discusses how all the bubbles have only grown in recent months, but their gold investments continue to perform very well.

Brian discusses how the US has crossed the 130% GDP to Debt level and last year, and they reviewed past outcomes of countries at these debt levels. The conclusion from the study was that default would be all but inevitable. Warren Buffet said recently, “If governments could always borrow at negative interest rates, it would have been discovered 2000 years ago.” People today have too much faith in the government’s ability to borrow.

He explains how equities are overvalued when measured by CAPE metrics. Today we are at levels twice the norm, which means that a pullback of 60% would be required to return to normal. Bond markets are also likely to burst, which would likely mean a drop of 80%. We seem to have another housing bubble, along with the price to rent and price to income levels, all being back nearly at 2006 levels.

China produced and used in one month more cement than the US utilizes in a year. If China bursts, it would almost certainly cripple global growth. The next crisis could easily be the worst crisis since the great depression. At this point, nearly anything could trigger such an event.

Brian remains a gold bull and believes any crisis should be a significant windfall for investors with mining equities. Since the market cap of gold equities is relatively small, he expects a lot of new capital could come flooding in looking for a new home. He discusses how they measure and compare the value of mining equities.

He argues that physical gold’s nominal returns are going to underperform most other investments. This is why funds like Berkshire Hathaway chose to invest in Barrick Gold rather than physical metal.

He explains how they adjust and rebalance their portfolio depending on expected future returns and why this is important for mining equities.

Lastly, he touches on two markets that he feels are in bubbles, bitcoin, and global housing markets.

Time Stamp References:
0:00 – Intro
0:37 – Bonds & Collapse
8:33 – Yield Curve Control
11:49 – Gold Expectations
13:50 – Foreign Investment
14:32 – Silver Investing?
15:29 – Gold Value Investing
16:25 – Valuing Equities
18:10 – Physical Gold Investing
23:23 – Factoring Risk
27:47 – Portfolio Rebalancing
30:17 – Gold and Oil
32:34 – Bitcoin & Bubbles
37:23 – Global Real Estate
38:38 – CPI & Inflation
39:52 – Wrap Up

Talking Points From This Episode

  • Debt, GDP, interest rates, and collapse.
  • Measuring equity valuations.
  • China’s bubbles and risk to global markets.
  • Physical metal vs. Mining Equities

Guest Links:
Hirschmann Capital Letter (pdf):

Brian Hirschmann, CFA, is the Managing Partner at Hirschmann Partnership (HP) launched in 2014. Since its inception, HP has outperformed its benchmarks by a substantial 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 Professor Robert Shiller strongly influenced his investment philosophy. Robert is one of the few to predict both the dot-com and housing bubbles. Robert was also influenced by Professor David Swensen, Yale’s legendary endowment manager.

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