Introduction: Thomas D. Conrad, Ph.D. is a hedge fund manager and president of Financial Management Corporation. He received his Masters Degree in Accounting, Statistics, and Financial Management from The University of Maryland in 1961 and his Ph.D. in Business Administration from The American University in 1965, with emphasis on Securities Analysis and Managerial Economics. His Doctoral Dissertation, "A Statistical Analysis of The Results of Integrating The Use of Mutual Funds and Life Insurance in Financial Planning," was later published. Dr. Conrad has held a seat on the Philadelphia-Baltimore-Washington Stock Exchange, and served in the Reagan Administration as Deputy Assistant Secretary of the United States Air Force (Financial Management). His website is www.worldfund.net and he can be reached at tdc@worldfund.net. The hedge fund he manages was one of the initial fund-of-funds.
The Daily Bell: Welcome back. We wanted to get a beginning-of-the-year perspective. How have the markets been treating you?
Tom Conrad: When it comes to trading, it depends on the timeline. We went extremely defensive last year and the market ended down 0.74 percent and we were plus 12.5 percent. That's a great divergence. I had a contrarian mindset, as readers may know. I was of the opinion that markets were overvalued around the world and that prosperity was mainly an illusion. Since then I believe Japan has entered a recession and so has Canada. The US is in a recession, unofficially, but I believe it will be in a recession officially this year.
The Daily Bell: Can you expand?
Tom Conrad: There are fundamental events that are moving the US toward an official recession and many of them are not hard to see. My decisions in this market have been taken defensively. First of all, I've long believed, as you know, that markets were due for a correction, a big one based on timing and events. You just had to keep track of the increasing debt and the number of countries laying people off around the world.
The Daily Bell: Can you describe the benefits of your strategy a bit more?
Tom Conrad: Our defensive posture proved very good for our returns and we expect to get a report from a group that ranks thousands of hedge funds and may place us in the top ten for the year in our category of diversified funds. We've been ranked as high as number nine and perhaps we may equal or beat that rank for 2015.
There are not many diversified funds, let alone funds-of-funds that manage double digit returns in any market. One of the ways I did it was to get rid of several managers in our 15 slots and replace them with more conservative strategies because the volatility was just too high.
The Daily Bell: You manage money, too, for the fund.
Tom Conrad: Yes, I manage money personally for the fund, and I sold both the Russell and the S&P short. We've been as high as 60 percent short, though the market has been more trendless than it was at the beginning of the year. There's plenty of volatility to come, in my estimation.
The Daily Bell: Volatility around the world?
Tom Conrad: In some places more so and others less. I like some European positions now, though I haven't kept up with the political situation. I tend to take my trading cues from the market and we have our 15 fund managers as well. Also, I've been concentrating on getting a second citizenship and residency in Uruguay. That's going well, but it's taking up a good deal of my time.
The Daily Bell: Can you add a bit more about Europe?
Tom Conrad: I do believe at the moment that European stocks may be safer to own than US stocks. I still like China and Japan as well in the long term. If I sound calm about the markets and what's taken place, please remember that my short positions help my equanimity, especially in the US.
The US markets have moved down around 9 percent but that means they have another 15 percent to go. In the past I'm on record as stating we could see a downward move of between 20 and 29 percent and I still think we're going to get there.
The Daily Bell: What about a continuing sell-off in Asia?
Tom Conrad: We've been making money in Japan and China, too. But with these countries, you have to look at the long term. I want Japan in my portfolio around eight percent. China, too, at some number and perhaps now is the time to buy, when there's blood on the street.
I don't want to sound too optimistic. I don't think 2016 is going to be a good year for anyone and the markets generally will be lower in October than on January 1st. The key date here is actually October 1st because people will be more certain about the election at this point and that certainty may be positive for markets. I believe you could see a market rally between October and December. But we need to recall the January effect. As January goes, so goes the year. And January this year was very bad.
The Daily Bell: It sounds like you think the end of 2016 will be better.
Tom Conrad: From November through December may be positive months for the market, though the overall year may well be negative. I think it will be more a matter of sentiment and economic behavior than it will be a monetary issue. The Fed hikes, however many they have of them or don't have, will have little effect on the overall trend.
The Daily Bell: Yes, what about the Fed? A positive or negative for market performance this year?
Tom Conrad: I think at this point Janet Yellen looks relatively silly as well as ineffective. In fact, they lost credibility long ago. That doesn't mean the system is going to fall to pieces, or that there's going to be a revolution, only that for now anyway people are trying to tune out central banking. There's not a lot more that can be done or that will be done in the near term.
The Daily Bell: Politics is going to play a bigger role this year.
Tom Conrad: Looking at events from a political standpoint, it could be that Cruz ends up running against Hillary. Unless Hillary is criminally indicted I think you can probably count on her to be our next president, the first woman president, so to speak. Why will Hillary win when there's so much criticism directed her way? Well, you have to keep in mind where that criticism is coming from. There's 40 million on food stamps and 90 million not looking for formal work. That's a large chunk of voters right there who might vote for Hillary to keep government checks floating their way.
Then there are women. Women will vote for Hillary and Hispanics will vote for Hillary – and remember, the Democrats have a two-to-one registration advantage. If Fidel Castro ran on the Democratic ticket, he'd probably win right now. Really, there's no hope for America. It's dead in the water, a submerging country.
The Daily Bell: That's a strong statement.
Tom Conrad: True. But in my view, you have three kinds of countries in the world right now. You have developing countries, achieving countries and submerging countries. Western countries are submerging – Canada, the US, France, Italy, Spain, even Germany. The West is submerging. The East is rising.
The Daily Bell: What about oil – the price of oil?
Tom Conrad: Oil is a huge concern. It's part of the reason for the volatility we've been having. If it hangs around $15 or $20, we're going to see some very bad economic times. The world and the markets can live with $50 oil, but not much less. This is something I'm going to be watching very closely and the reason, by the way, that I've started to buy gold miners, which are moving again. I've been buying silver as well. I've got a goal of ten percent of my portfolio and I call it insurance.
The Daily Bell: Some say the markets and the price of oil are being manipulated down. It's not at all a natural phenomenon.
Tom Conrad: I would tend to agree that the price of oil is an artificial phenomenon, not necessarily market-related at this point. It's hard to conceive of forces that have so much power over markets but I'm willing to grant they exist. The world is being pushed in one direction, like a boot being stamped on the face.
The Daily Bell: Is that the reason for Uruguay?
Tom Conrad: If you realize this, you react as I do. You look for second passports and countries abroad where you can live and where your family can come if necessary. It's your own personal form of internationalization. Doug Casey often talks about it, though I'm less doctrinaire than that.
The Daily Bell: A lot of the alternative media is cautious about banks and banking.
Tom Conrad: I'd certainly be careful of banks these days. I'd concentrate on having some physical gold and silver available. I would tend to prefer gold over silver but because of the gold-silver ratio, silver is probably a better investment at this point. But it takes so much damn silver to amount to anything. That's why I prefer gold. I buy it in what is called combi – combibars. You can crumble a combibar because it's so thin. What are you going to do with a regular bar of gold? Nothing. Gold ought to be practical so that if you get into a situation where you need to use it, you have a way of breaking it up.
The Daily Bell: You sound a bit grimmer than usual, Tom.
Tom Conrad: I'm not a young man but this is easily the worst outlook of my whole life. And so many of my fellow citizens are oblivious. You go and speak to them about civil forfeiture and bail-ins and they'll look at you like you're speaking another language. You know what people know about in the US today? They know about sports. That's all I hear – who is going to win the Super Bowl and why.
I've been making a move in Uruguay but if it were just my wife and me I might go farther. I might go to Asia, to Hong Kong. You know the US is now ranked around 19 in the world when it comes to freedom? Nineteen! Who would think the US would ever fall so far!
The Daily Bell: It's been happening for a while.
Tom Conrad: The US has become a nation of dependency. Even Uruguay is less dependent than the US, in my view. And in Chile you can invest your own Social Security as you choose. The Hell with democracy. You want to go somewhere that markets are still free. That's that bottom line. Is it a free-market economy or not?
The Daily Bell: Yes, the economy is more important than the politics.
Tom Conrad: The more politicians there are, and the more active they are, the more problems you have. I always say that air conditioning ruined the United States. Before air conditioning no one wanted to spend any time in Washington DC. They came for a few months in winter and then they left. Now they're all there year-round. You can't pry them away. They're way too comfortable.
Even when they finally do retire, they're still at the trough. They get half-million dollar bonuses and full salaries and benefits for life. They write the laws and for every supporter who gets disgusted and leaves, they gain ten others. That's why I say the US is a submerging country.
The Daily Bell: Mainly politics?
Tom Conrad: And ignorance. People are damn ignorant. It's worse than it ever was.
The Daily Bell: Even with the Internet?
Tom Conrad: The Internet has helped some a great deal. In fact, it's made the divide wider. If you've educated yourself, then you have an idea of what's going on and what's important to do. That's a good point. These days if you want to look you can find the answers and formulate a plan. It's all there for you.
The Daily Bell: Sounds like you're working on your own plan.
Tom Conrad: I'd encourage others to do the same.
The Daily Bell: Thanks for sitting down with us.
Tom Conrad: Thanks for having me back.
We wanted to have Tom back with us to give his outlook from an investment standpoint on the upcoming year. From our perspective, he certainly didn't disappoint. He gives us some straight-talk in this interview as well as some surprises.
We didn't expect his quasi-optimism on Japan or China, nor the level of his disdain for what's going on in the US. Surely, he may be right about the outcome of the US elections if Hillary Clinton remains in the running. She could well win.
With Hillary in the White House, we could expect more of the same expanding ruin when it comes to the US and to an even greater degree. But Tom is probably correct. No matter what happens, the US is on a decline.
Interestingly, Tom has apparently made a decision to spend more time in South America and to prepare a second home. It seems only logical given what's going on in the states. The only surprise is that he seems to indicate that more in his own circle are not as aware as they should be of what's going on.
From our perspective, as a hedge fund manager and active professional investor, Tom has always been insightful about the world situation and current events. That's one reason we reach out to him and thank him again, as always, for his blunt talk and uncompromising views.
