Michael Hintze’s viewpoint on various hot button topics ranging from the inversion of the 2s10s yield curve, quantitative easing, the ongoing US-China trade and the greatest geopolitical event of the century, the centric shift East along the new Silk Road makes a good inflection point for investors.
The US administration’s inspired trade war with China is predictably negative for global growth, according to Michael Hintze’s viewpoint.“Trade tensions between the U.S. and China have the potential to spark a recession”, wrote the billionaire hedge fund manager in his latest piece.
“Trade tensions between the U.S. and China have the potential to spark a recession”
Michael Hintze’s viewpoint regarding the rise of protectionism is in cahoots with several hedge fund titans
Indeed, Ray Dalio’s 1930s analogue that the slide to protectionism in the Great Depression is eerily similar to today, in other words, China is like Germany in the last century challenging the world order, US hegemony.
But that is a hawkish view which wags the tail of the military-industrial complex. US-China relations are at an ebb, the US is in a new Cold War with China and I don’t buy these trade talk theatrics. Perhaps the US wants a trade war, a Cold War with China because it keeps the defense industry’s cash tills ringing with multi-billion dollar contracts. To put in bluntly, MIC can’t make money with peace. But most importantly it could be Washington’s foreign policy strategy of containing China’s threat to US hegemony. We are witnessing the hard power of an Empire and Trump is fronting it. The white knight on the horse will take his countrymen to the mother of all wars.
“It is about game theory. Someone needs to flinch first and I sense that President Trump’s desire to make good on his election promises ahead of the November mid-terms makes it unlikely that it will be him”
MICHAEL HINTZE (on the US-China trade war)
Michael Hintze’s viewpoint regarding an all-out trade war being damaging to the global economy was put forward in his firm’s mid-year commentary
“It is about game theory. Someone needs to flinch first and I sense that President Trump’s desire to make good on his election promises ahead of the November mid-terms makes it unlikely that it will be him” writes Michael Hintze.
But that is the problem, no one is going to flinch first. In the one corner is China the oldest civilization who views anyone on the other side of the Great Wall as barbarians and now aspiring their great place in the world. On the other side, the world’s heavyweight champion the US with American exceptionalism on the ropes feeling their hegemony threatened, armed to the teeth and maybe even itching to fight it out on a barbaric battlefield. Two great powers believing that they are superior to each other and now locking swords will not end well.
“China’s Belt and Road Initiative will help spur economic activity globally, and developing economies are forecast to continue to outpace developed ones” – Michael Hintze
An unpopular US-inspired trade war with China could also undermine the US dollar’s status as the global reserve currency, according to Michael Hintze’s viewpoint
“In the very long-term, I fear that this has the potential to undermine the US dollar’s status as the global reserve currency,” wrote Michael Hintze. The billionaire hedge fund manager is also forecasting higher oil prices due to geopolitical uncertainty.
Regarding business investment, Michael Hintze’s viewpoint suggests an unwelcome short term cut in global Capex spending
“In the immediate future, though, the biggest worry is the impact that tariffs could have on business confidence and investment decisions” writes Michael Hintze. It is a concern because it is a decline in business investments which is what causes a recession.
Michael Hintze’s viewpoint on China’s Belt and Road Initiative is upbeat
“China’s Belt and Road Initiative will help spur economic activity globally, and developing economies are forecast to continue to outpace developed ones” he writes. But US shooting war with China, if it were to occur, would be a game-changer for businesses and investors alike.
Regarding monetary policy Michael Hintze’s viewpoint is that it offers investors with both opportunities and risks
“Global economic growth and monetary policy are not in sync, which both presents an opportunity and “will provide longevity” to the expansion, he wrote.
“While prices in credit markets are close to historic highs the removal of quantitative easing and policies meant to stimulate the economies have helped to bring back dispersion between the prices of different securities, and market volatility is providing openings for investors to snap up securities,” added Michael Hintze.
As for that notorious recession-indicator, the inverted inversion of the 2s10s curve Michael Hintze’s viewpoint is that he thinks a flatter yield curve is “anything more than a technical signal” requiring monitoring
It has been distorted as an indicator by “central bank interventions, fiscal and monetary policies changes, U.S. Treasuries’ status as a safe-haven, and pension fund demand,” he writes. The Fed could easily buy the 2s treasuries which would increase its price and reduce its corresponding yield, thereby flatting the inversion of the 2s10s curve. Put simply, the Fed could financially engineer a flatter yield curve if it wants to.
“tax cuts will help widen the budget deficit and increase the supply of Treasuries, putting even more pressure on the curve” – Michael Hintze
Michael Hintze’s viewpoint is that a widening deficit, tax cuts will put even more pressure on the curve. “Furthermore, tax cuts will help widen the budget deficit and increase the supply of Treasuries, putting even more pressure on the curve” he wrote.
The financial market’s Achilles’ heel is US corporate debt, according to Michael Hintze’s viewpoint
US corporate debt has ballooned since the financial crisis which has been spurred by mergers and acquisitions in health care, food and beverage, utilities, telecoms, and stock buybacks. “Even though net leverage for high-grade companies is about where it was in 1999 to 2002, interest coverage has declined to levels last seen in the period from 2006 to 2008, albeit above the 1999 to 2002 period. Default rates are forecast to stay low,” he wrote.
Michael Hintze’s viewpoint on “fallen angels” was also put forward
“Fallen angels” are those companies worse impacted when the economic cycle turns.
Michael Hintze believes that this will trigger a wave of corporate downgrades, which means a slew of companies clinging to the bloated bottom rung of high grade, BBB, will fall to junk.
Michael Hintze forecasts that it will force ratings-constrained sellers to hand over perfectly good bonds they’re already analyzed and will be ready to buy.