Australian investors should be more worried about China than sweating on Federal Reserve independence and other market obssessions to do with Donald Trump, says billionaire conservative Baron Michael Hintze.
As the US president imposes his tariffs and jawbones the Fed into cutting interest rates and remaking the board with his nominees, Lord Hintze told the Sohn Hearts and Minds philanthropic investment conference in Sydney that the reaction was overdone and that the entire system was a “massive Ponzi” scheme anyway.
They should be much more focused on what happens in China and the advantages it has cultivated in critical minerals and cheap energy.
“You’ve got the Trump volatility thing going on here. It’s all very well of the left (of politics) to make fun of him but he’s a very, very serious guy. Whether he’s a good guy, bad guy, that’s a different conversation altogether,” Lord Hintze, an Australian who was born in Harbin, China, said. “It matters more for Australia to say, Australia, what’s happening with China.”
Global markets were jolted on Thursday night when Wall Street had its worst session in a month sunk by artifical intelligence share valuations and angst around the Fed’s next move.
The Brisbane-raised head of $95bn US fund manager First Eagle Investments, Matthew McLennan, told the Sohn conference that one of the “lessons of history” is that owning gold has successfully insured investors from ballooning fiscal deficits.
“There are other assets like gold, a block of land, great businesses that are variable in their nominal price, but more fixed in supply. And the paradox of time is that as you extend your horizon, what is volatile in the short term can be more secure in the long term,” Mr McLennan said.
The volatility he described only underlined the importance of AUKUS to Lord Hintze, who said, “soft power without hard power is no power at all”.
The billionaire cited China’s dominance in critical resources, for example. The country produced 94 per cent of the world’s 252,000 tons of rare earth permanent magnets last year, which are essential for everything from military drones to electric vehicles.
“There’s an element of mutually assured economic disruption, which I think will keep the peace,” he predicted of the US-China dynamic.
He identified 2027-28 as a potential flashpoint when US dependence on Chinese rare earths begins to fall as domestic mining capacity ramps up. This timing coincides with presidential elections in both countries and Taiwan.
Mr Trump hailed an “amazing meeting” with Xi Jinping on the sidelines of an APEC meeting in South Korea last month where “Taiwan never came up” and he volunteered he would visit Beijing in April.
For world markets, China’s economy and its politics have been overlooked in favour of the gyrations of US interest rates and resurgent inflation expectations. Gold is a primary beneficiary of inflation sensitivity.
Market watchers have even put the election of democratic socialist Zohran Mamdani as New York City mayor down to inflation.
Lord Hintze played down Mr Trump’s application of pressure on the Fed which some investors have claimed damages the independence of the central bank and purity of interest rate decisions.
“Do you need an independent Fed? Frankly I don’t know,” he said. “The Fed doesn’t really matter anymore.
“For one thing, the Fed is not just money. It’s also about inflation and it’s also about employment. What else is included in the economy is whether you have fiscal deficits.
“Having [government and the Fed] split apart is great. But investors don’t care anymore, why? Because we have gone into a dynamic stochastic equilibrium model of running the darn thing,” he said.
“I just think this whole thing is ridiculous. (The Fed) has to be separate anyway. Even when the central bank is owned by the government, it has to be separate, because you cannot run a deficit and just monetise the debt.
“This is one massive, massive Ponzi scheme. Who cares right?”
Barclays global chairman of research Ajay Rajadhyaksha, who joined Lord Hintze at Sohn on Friday, said he also thought the bond market was now looking past the risks of central bank independence.
“It’s a little shocking, but I guess the bond market has made up its mind that the institution will hold when it comes to independence, and so far, they’ve been right,” Mr Rajadhyaksha said.
“Trump is not going to do anything that upsets the apple cart. This is just window dressing,” Mr Rajadhyaksha said.
Lord Hintze, who sold most of his $20bn managed funds company CQS to the Canadian giant Manulife Investment Management in 2023, believed fear over the Trump administration’s tariffs was also overdone.
“Why these tariffs don’t matter, because the world is going forward, and yes, you’re putting rocks in the street. But in most places, it doesn’t matter,” he said.
Watching the US President make decisions did make him nervous, but he hoped Mr Trump didn’t make a mistake.
“Watching Trump do this is like watching a guy climbing a cliff without a rope. You hope to God, he doesn’t fall.”
Lord Hintze joined the House of Lords in 2022 on ex-premier Boris Johnson’s nomination, for his philanthropy and his donations to the Conservative Party. He supported Brexit and has been a much watched figure within credit markets globally.
Anthony Scaramucci predicted Mr Trump would not run in 2028.
This article was originally posted by The Australian here.
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