Hedge fund manager and macro economic expert Hugh Hendry just issued a major warning on the US banking system and the American economy as a whole.
In a new interview on Bloomberg Markets, Hendry says mass panic and capital flight away from the US banking sector is entirely justified.
Hendry says a further decline in the M2 money supply, which in part tracks money in liquid checking accounts, could convince the US government to step in and prevent citizens from taking their capital out of the banking system.
“Sometimes it’s kind of relevant to panic. I would recommend you panic… You’ve seen the biggest waterfall decline in M2 right now. M2 is deposits, not loans. That’s the deposits fleeing the system and going into money market funds.
That could reach a crescendo where the Treasury and the Fed may have to come in and actually restrict your right as a US citizen to pull money out of the US banking sector.”
Hendry says capital flight from US banks is not solely about fears on whether the FDIC will insure deposits above $250,000, and a blanket guarantee on deposits would not solve the problem.
“There is capital flight, deposit flight from the banking sector seeking yield. I fear that, I don’t say this lightly, but in 1934 the Federal Reserve Act confiscated gold from US citizens.
We’re at the point where the Fed and Treasury officials I’m sure are having to consider a gate a lock on US bank deposits.”
When it comes to where Americans can place their capital amid the uncertainty, Hendry says his go-to is US Treasuries and potentially Bitcoin.
“It’s time to own the most reviled security in the universe, the ultra long Treasuries. I know you all think we’ve got an inflation problem. It was a supply shock, and a supply shock needs the manifestation of more and more bank printing of loans to propel it into the future. We’re getting the opposite. The ultra longs are trading two to three standard deviations below the ETF…
I’ve not got the bug, but Bitcoin is something I could conceive as an asset class that could trade three or four times higher in the next five years. There is no other asset class that I could make that determination.”