FRA Co-founder Gordon T. Long is joined by Erik Townsend in discussing what it means to be an American entrepreneur and his perspective as a global traveler, along with the impact of the upcoming election.

Erik Townsend is a retired software entrepreneur turned hedge fund manager. Throughout his career, Erik has capitalized on his ability to understand complex systems and anticipate paradigm shifts far in advance of the mainstream. By the mid-1980s, Erik had invented an approach to distributed system design that is now widely known as Service-Oriented Architecture (SOA). In 1992 Erik founded the Cushing Group, a boutique consultancy focused exclusively on bringing advanced distributed application computing technologies to market. The Cushing Group’s work with Wells Fargo Bank in the early 1990s paved the way for Wells Fargo to become the world’s first Internet Bank by early 1995. After selling the Cushing Group to Ciber, Inc. (NYSE: CBR) in 1998, Erik briefly engaged a well-known investment bank to manage his assets, but was profoundly disappointed with their services.

Erik has become a passionate world traveler. He moved to Hong Kong in 2009 to get a better perspective on changing global economics. While living in Hong Kong, several hedge fund professionals he met there observed that through his own passionate trading activities, Erik was “already doing all the work of running a hedge fund except for picking up the phone and calling a lawyer and turning it into a fund”.

Erik eventually took his Hong Kong friends’ advice to heart, and founded Fourth Turning Capital Management, LLC in 2013. Through that asset management company, he launched a Global Macro-strategy hedge fund in July 2013. In February 2016, in a joint effort with Nathan Egger, Erik launched Macro Voices, a new weekly financial podcast program which will target professional finance, high net worth, and other “sophisticated” investors who desire financial content at a level of sophistication and complexity above what the retail investment-focused podcasts on the Internet presently offer. Erik continues to live a very international lifestyle, and presently has homes in Hong Kong, Mexico and the United States.

AS AN ENTREPRENEUR

Being an American entrepreneur was kind of a hero story. It was understood in America that the people who launch small business and innovate new ways of doing things are the heroes that make America strong, and made it what it once was. It’s in decline, unfortunately. In 2008 I wanted to get back into technology entrepreneurship, bur there were barriers to entry and it was so easy to watch the reckless monetary policy and get into trading instead. The government is desperate and doing crazy things. We’re in very unprecedented times, and if you can understand that picture, it’s not too hard to be successful in trading. It’s much easier to make money by understanding how reckless the government is being.

“I help rich people get richer while watching the country that I’m very proud to be from, in my eyes, fall apart at the seams. Being an entrepreneur was a much more responsible and honorable thing to do with one’s life.”

There’s a huge financial incentive to trade markets and take advantage of the huge inefficiencies that are created by reckless actions of government.

TECHNOLOGY IN ENTREPRENEURSHIP

“I don’t know that entrepreneurship is necessarily stronger in other places, compared to what the United States used to have.”

There is no place that begins to compare with what America used to be. We see America in decline today. It’s gone from being head and antlers above the rest of the world down to still one of the better countries. I don’t know that there’s anything that’s dramatically better in terms of opportunities for entrepreneurs starting their own companies.

“I think that Americans who don’t travel a lot have no idea how much things have changed.”

Technologically, every place was behind the United States. But that was during the 80s. Today, America is run down and broken. The systems in the United States don’t work very well. Asia is shiny and new.

For example, Hong Kong’s octopus card. It has an RFID chip in it and can be used on every form of public transit as an electronic cash card. This was in service and working in 1997. That was 19 years ago and there’s nothing like it in the United States today. Gigabit internet is standard around most of the world now, yet it’s next to impossible to find. Hundred megabit is “unheard of fast” in the United States, but that’s really slow service in most of the world now. What makes this infuriating is that all of the underlying technology that makes this possible was invented in the United States.

“Why is it that the United States is last in terms of adoption of technology that we ourselves invented? I think it’s the failure of government. They have created so many barriers to entrepreneurs taking technology and using it to change society for the better that entrepreneurs are going and doing it elsewhere where governments are cooperating with them.”

That said, the way things are done elsewhere is according to procedure with no deviation from the standard policy. The way Americans think and innovate is still culturally not accepted in most of the world, so we still have that advantage.

In a lot of cases, we’re seeing a lot of American entrepreneurs move overseas because there are better opportunities there. The American government used to recognize that its job was to promote and endorse that kind of innovation, but now they’ve basically been sold out. Entrepreneurs can’t afford lobbyists, but large corporations can. It doesn’t matter how innovative you are; if your government prevents you from being successful, the most innovative people will find other parts of the world.

“I think that if the government continues to prevent American entrepreneurs from succeeding, they’re going to go elsewhere and they’re going to bring their talent to help other countries to be competitive.”

FROM ENTREPRENEUR TO HEDGE FUND MANAGER

Dealing with executives of Fortune 100 companies, you need to prove your ethics and morality and loyalty to them before they’re willing to give a small company a chance. In Wall Street, the boxing analogy is what you have to wrap your head around.

“What you see on Hollywood movies about business being cutthroat, it doesn’t really work that way in most of corporate America. On Wall Street, it’s worse than that.”

Entrepreneurs are people who make things happen, who get things done, and that’s what makes us successful. But investing is the opposite of that. They watch and make decisions based on what other people do. Entrepreneurs also don’t have to listen to stupid people, and you can’t do that in investing. If you focus on what should happen in the economy, you’re going in the wrong direction. You want to be learning how the people who are actually in power think.

“During my work week I have to learn how to think like the people who are in charge do, and it’s not based on common sense.”

THE PROBLEM OF CENTRAL BANKS

Governments are taping over our problems and addressing symptoms with printed money. The root cause of the 2008 crisis was too much debt. The solution governments proposed was more debt, and they’re trying to stimulate credit markets in order to get banks lending again so people can go back to spending beyond their means. There’s no focus on saving and investments. A lot of people have said this is unsustainable.

“The truth of the matter is that central banks, with a deflationary backdrop like it is now, can continue to print money.”

They can keep getting away with addressing symptoms as long as we have a deflationary backdrop that permits money printing to occur without causing runaway inflation. Once we get to runaway inflation, central banks will have no choice but to tighten in order to arrest the inflation, and then things will come crashing down.

We’re printing all this money to benefit Wall Street; it’s not benefiting hardworking Americans, it’s supporting financial markets.

“Wouldn’t it be better, if quantitative easing has to happen, if it were helicopter money that helped everyday people?”

When inflation hits the stage, that’s when central banks have to fold their cards. What happens in the meantime, almost everyone thinks that negative interest rates are coming to the United States. As we do get back toward a worsening economic situation, we’re going to see an uprising. Americans might not understand the problem, but they know there’s a problem and they’re angry about it. If there’s going to be more quantitative easing, there’s going to be very strong political pressure that it should be to help Main Street, not Wall Street.

“I think the next president, the one elected this year in 2016, could very possibly be the most important president in the nation’s history because I think the fiscal situation is likely to come to a head.”

People around the world don’t envy the USA the way they used to. They’re angry. The world is getting very pissed off at Americans. Hilary Clinton is talking tough with Russia. Donald Trump is talking tough with China. When you start picking fights with Russia, with China, these are places who have the ability to end humanity on Earth with the push of a nuclear button, just like the US does.

“All of the candidates, I think, are very dangerous in terms of their very tough-guy attitudes that they’re taking toward other countries. So I’m very concerned about where we’re headed in terms of American hegemony offending people that are able to defend themselves.”

THOUGHTS TOWARD THE FUTURE

You’re better off not being a speculator, but in an era of financial repression that gives negative returns. So you either accept financial repression and that your wealth will erode slower than other people, or you become a speculator.

“I think the opportunity is coming to buy energy, hand over fist.”

You have to watch the action of central bankers, and recognize that the smartest people in the room are saying that the global economy does not support current asset prices. What does support current asset prices is that the Fed is going to be accommodative and continue to prop up asset prices. The longer this goes on, the harder the fall will be.

If you wanted to own something long term, precious metals will definitely behave very well. But buying and holding long term in the stock market is not recommended. We’re in an environment where asset prices have been artificially propped up, they’re supposedly taking the punch bowl away and if they do, I think that we could see a very precipitous drop.

PODCAST HOST EXPERIENCES

“I wanted there to be a de facto place where you could go online and collaborate and share investing ideas with other smart people.”

If you look at what’s there in terms of discussion forums on the internet, it’s childish. So where do the adults go for discussion? So I created a podcast that specifically targets high net worth individuals, family offices, accredited investors, basically sophisticated investors living in financial repression and understand that they have to speculate to avoid a negative real rate of return. And that means collaboration.

“The idea behind MacroVoices is to create that podcast, get that discussion going in the podcast, and then have a listener discussion forum where we can discuss the topics and continue the conversation, bring that global community of sophisticated investors together.”

There are other platforms like Twitter, which are starting to gain a huge amount of market share. We’re participating on Twitter through the MacroVoices handle, as well as having our own listener discussion forums. The idea is to just get smart people talking to one another.

“I get to interview the smartest people on Earth about financial topics, and what we tell them all off the air is what we’re doing different here is please do not dumb it down to a retail level. We want you to speak on a professional level.”

So we keep the guest interview on a professional level, and then add a conversation to explain any issues that might have been confusing to the retail component of the audience. We thought we were going to offend the retail audience, but it’s the opposite. The more that they don’t get it, the more interested they are, and the more they post questions and ask other listeners to help them understand.

“Not dumbing it down is the best thing that we’ve done.”

Abstract by: Annie Zhou a2zhou@ryerson.ca

Video Editor:   Min Jung Kim minjung.kim@ryerson.ca

Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.