by ilene - January 21st, 2011 9:42 pm
Courtesy of Zero Hedge
Europe risks getting it wrong again on rate rises
From European Central Bank, posted first in the FT
The euro project has not gone according to plan. It reminds me of the story of the James Bond character Q, based on the British intelligence officer Charles Fraser-Smith. It was he who invented a compass for spies hidden in a button that unscrewed clockwise. The contraption was based on the simple yet brilliant theory that the unswerving logic of the German mind would never guess that something might unscrew the wrong way. This is really what happened with the euro. New member states were supposed to take lower German interest rates and invest their resources wisely to improve and deepen their productive capacity. Instead, they used the advantage to finance speculative asset bubbles. The peripheral nations of Europe turned the wrong way. The Germans are unhappy.
But, desperate to cling to monetary union, the other European sovereigns have opted to default on their spending promises to voters rather than impose a haircut on their financial creditors. In the 1920s the pay-off structure had been very different. The first world war took an intolerable toll on the typical household both in terms of the loss of life and financial well-being; everyone had become poorer. Accordingly, there was little willingness on the part of the ruling political class to force austerity measures to redress the fiscal imbalances. The people had suffered long enough. Consequently, there was much procrastination and fiscal deficits persisted way beyond the end of the war, making capital markets reluctant to accept the waning security of government paper and forcing the sovereign to rely on the central bank’s printing press.
This time around, however, the political class has concluded that the Greeks (especially the Greeks!) and the other peripheral states have done so well off the back of the euro project that it is their turn to shoulder the burden. They calculate that the social pain would be less severe than the financial costs of a debt default and/or a euro exit. Of course, this is to neglect the financial consequences of bailing out the financial sector in 2008 and its ensuing impact on the ordinary household. Can an analogy be drawn between the first world…
Hugh Hendry Interview With King World News: “If Inflation Is A Monetary Phenomenon, Hyperinflation Is A Political Phenomenon”
by ilene - September 28th, 2010 8:27 pm
Hugh Hendry Interview With King World News: "If Inflation Is A Monetary Phenomenon, Hyperinflation Is A Political Phenomenon"
Courtesy of Tyler Durden
In which we learn that that outspoken iconoclast has now taken on a $2 billion short position in Japanese credit, although presumably not cash-based as Ecclectica is well under that in AUM. For those who wish to recreate this position synthetically, we refer you to Dylan Grice’s ATM swaption in the 10Y10Y forward which is the cheapest way to follow in Hugh’s footsteps, and, ahem, may we remind you of Takefuji’s recent bankruptcy…).
His bet is in essence a gamble against the "China will never fail" bandwagon: "I am just intrigued as to the optionality, as to the profits that could be made, should that revert. And because it’s deemed to be impossible, the trade is actually asymmetric. By golly if I am right, I can make a lot of money." Another topic is the already much discussed malinvestment in China, which was the centerpiece of the argument between Hendry and Faber from some time ago (link for clip). But back to what actual things Hugh is doing, he gives the following specifics: "I am shorting 10 year industrial corporate debt with 1% yield. Should this ricochet, which began in America, should the west be grappling with fears of recession, it goes to Asia, it goes to China, and I do not believe they have the vitality and consumption to pull the global economy out." And just in case there is any doubt how Hendry views the endgame, here it is: "At these immense levels of yen strength, Japan is bankrupt. And when it’s bankrupt it has given up hope, and there is huge political legitimacy to then do quantitative easing, which leads to the debauchery of the system." In other words: the nuclear response of monetary debasement is certainly coming. We won’t spoil what Hendry says on gold (suffice to add the following quote: "We will see a joint meltup in US Treasrys and gold") – for his insights on where the metal will go, for a shoutout to all Zero Hedge Hugh Hendry fans, and for much more, listen to the whole interview.
by ilene - September 24th, 2010 2:53 pm
Courtesy of Edward Harrison of Credit Writedowns
BBC HARDtalk interviewed hedge fund manager Hugh Hendry, CIO & CEO of Eclectica Asset Management, this past Tuesday night. The videos are below.
- Hugh Hendry ‘I would recommend you panic’
- Hugh Hendry: Eclectica Fund Management Commentary, May 2010
- Hugh Hendry on Euro Outlook and George Soros
- Hugh Hendry talking Greek and euro banker bailout on CrossTalk
by ilene - September 22nd, 2010 8:28 pm
Hugh Hendry admitted he’s down this month while talking to BBC Hard Talk on Tuesday.
The often unhinged hedge fund manager was subdued until his interviewer began asking him about regulation and risk-taking in the hedge fund industry.
Then he got pretty riled up and spilled that he’s losing money this month, and how much it hurts.
It all started when the interviewer brought up financial regaultion.
"The financial industry is the most regulated sector in the economy," Hendry says.
Then the interviewer suggested that hedge funds, like Hendry’s are less regulated and therefore riskier than banks.
To which Hendry replied, "The most effective form of regulation is that if you mess up, you fail. And that’s the regulation that I’m subject to."
(Watch how the interview proceeds. Our summaries of the interviewer’s questions are in italics.)
Isn’t that very risky? asks the interviewer.
"I do not take extreme risk. Do you think for one moment [rich familes that have saved their money for generations] would give me their money to take extreme risks with it?" (circa 2:10)
Yes, I do think they would. I think that’s the premise that the entire hedge fund industry is based on.
"Extreme risk means that there is a very high probability of losing all of that capital."
Well, that’s what has happened to many hedge funds recently.
(This is when Hendry starts getting upset. The suggestion of his clients’ money being at risk in his hedge fund.)
"I spend half of my time allaying their fears – being transparent, addressing their issues - Where could I lose money? How much could I lose?" (circa 2:54)
(Then we find out why he’s really upset.)
"I’m losing money this month – it’s a very uncomfortable process! My phone never stops!" (circa 2:58)
Hendry quickly went from the best macro fund (up over 13% YTD as of August) to losing money.
by ilene - September 21st, 2010 11:24 am
Courtesy of Tyler Durden
It is no longer fun being a hedge fund manager – first, up until the recent POMO-based rally in stocks, HFs were down for the year, and what is far worse, they were underperforming the broader market – a death sentence for pretty much every hedge fund, as this is proof a fund can not extract alpha and thus has no reason to collect 2 and 20. While the recent ramp in the market is welcome by all bulls, the question remains just how leveraged into the latest beta rally hedge funds have been. If after the nearly 10% rise in the past 2 weeks any individual HFs are still underperforming the market, it is a near certain "lights out."
To everyone else: congratulations – you just bought yourself another three months of breathing room. Better hope the Fed makes good on its QE promises one day soon. In the meantime, Bloomberg Matthew Lynn and Ecclectica’s Hugh Hendry both confirm that in these days of instantaneous liquidity demands, and cheap strategy replicators in the form of ETFs which provide the same beta capture as hedge funds, at a fraction of the price, it is only going to get worse and worse for the once high flying community. In fact, Hugh Hendry goes as far as suggesting that 10 years from now 80% of all hedge funds will be gone. Our personal view is that the target will be reached in a far shorter time frame.
On one hand, Matthew Lynn shows the uphill climb that defenders of the hedge fund industry have to pass in recent days. "An industry that doesn’t know how to defend itself, and has forgotten how to justify its existence, is in crisis. Hedge funds are now in that position." Hilariously, Lynn shows that hedge funds uses that good old staple used by HFTs to defend their own piracy ways and means: providing liquidity.
On both sides of the Atlantic, hedge funds have been busy trying to hold their own against the tide of fresh regulations sweeping through capital markets.
The Washington-based Managed Funds Association, the U.S. hedge-fund industry’s biggest trade group, has been campaigning against proposed curbs on high-frequency trading. That would, it says, reduce liquidity
by ilene - August 30th, 2010 9:45 am
With concerns about surging food prices recently inflamed courtesy of the series of fires in Russia and the halt of grains exports out of the country, several heavy hitters have come out recently to discuss their views. One among them is the man with the best YTD performing macro hedge fund according to Bloomberg, Hugh Hendry, who appeared on BBC’s ever-informative Newsnight to discuss potash, food prices, and other scarce resources.
On whether the world is facing a massive food shortage, Hugh’s conclusion is that as long as Asia does not have a recession, things are ok, otherwise "in due course there would be great pressure on the food supply." As for Potash, Hendry says that China and Canada "hate each other [in the space]. There has been a profound game of roulette – Chinese consumption of Potash is 35% less than used in Western agriculture. At these prices, the Chinese haven’t been consuming in the manner in that they should and they risk an absolute collapse in their yields… China does have a vulnerability in feeding itself which we don’t have because we embrace potash at productive levels."
As for geopolitics, the topic arises of what African quid pro quo demands for having the most arable land should be and sending products over to China. The observation is that Africa’s bargaining position is negligible (those Goldman offices in Ethiopia, protecting the interests of the locals, are oddly missing).
All this and more in the below clip:
by ilene - August 7th, 2010 9:56 pm
Interesting video--argues for eventual hyperinflation in the US. – Ilene
Courtesy of Tyler Durden
Whether one believes in inflation or deflation, one thing is certain: in many ways the current US experience finds numerous parallels to what has been happening in Japan for not one but two decades. While major economic, sociological and financial differences do exist, the key issue remains each respective central bank’s failed attempts to reflate its economy. While long a mainstay of Japan, if the first failed version of our own QE, which pumped $1.7 trillion of new liquidity into the system, is any indication, future comparable efforts by our own Fed will be met with the same outcome (and hopefully with the same political result: the half life of an average Japanese prime minister is 6 months – if only our career politicos knew their tenure in office could be capped at half a year…).
There is of course the "tipping point" optionality discussed earlier by Ambrose Evans-Pritchard, when comparing the hyperinflationary timeline during the Weimar republic, which noted that it took just a few months for the economy to slide from a period of price stability to outright hyperinflation. Either way, for an ironic look at the Japanese deflation scenario, targeted more at novices although everyone will likely learning something from it, we present the following informative clip from, ironically, the National Inflation Association, which asks whether Japan is a blueprint for America’s imminent lost decade(s).
by ilene - July 20th, 2010 3:15 am
Apparently nobody wants to disagree with him publicly, or even privately anymore.
The Eclictica manager is profiled in tomorrow’s NYT about how he’s a brilliant contrarian, though he doesn’t come off as THAT contrarian. For example, he’s bearish on China and Obama.
This part is amusing, however:
Mr. Hendry’s outspokenness has won him both fans and detractors.
Marc Faber, the money manager known as Doctor Doom for his bearish views, calls Mr. Hendry “a deep thinker.”
“He has strong views and expresses them, not to get publicity but because he has a great understanding of the markets,” Mr. Faber says.
Some London investors are less charitable. Two declined to comment on Mr. Hendry, saying they did not want to “get into a fight” with him.
So… we know that some in London don’t like him, but two won’t comment because they don’t want a fight. Guess that means no more Hendry debates.
by ilene - June 24th, 2010 4:46 pm
Courtesy of Tyler Durden at Zero Hedge
In this interview by Bloomberg’s Erik Shatzker (we have added the full interview, not the abbreviated version), Hugh Hendry tries hard not to dance on the euro’s grave… and fails. He compares the European currency to the gold standard in the 1920′s: "We are now seeing a conflict between domestic stability, prosperity and the need for external balance, and that typically rings the bell on such a system." He further discusses George Soros’ recent media appearances and his recent Op-Ed in which as was noted, the Hungarian is very concerned about the eurozone courtesy of Germany’s non-Keynesian actions. In tried and true fashion, Hendry doesn’t mince his words: "George is someone we all aspire to match his brilliance. But remember the richest people in the planet become socialists. Socialism is a great thing for George. I want to bring George down. I want George’s reputation. But George is now embracing socialism. Socialism is where you build a moat around the castle. I am spending all of my time trying to decide where I’m gonna live, because taxes in this country are so high, and less of my time trying to work out how do I surpass Soros and his reputation." And his take home message: "The noose is getting tighter and tighter… not in Europe, but in Asia."
by ilene - June 1st, 2010 10:55 pm
Courtesy of Edward Harrison at Credit Writedowns
The PDF of Hugh Hendry’s letter to investors is embedded below. Enjoy.