Friday, March 20, 2009

Hugh Hendry of Eclectica Asset Management is Wickedly Good

I thought I'd bring a voice to you today from "over the pond" - during the many sleepless nights in 2008 as we watched government interventions on Sunday nights and awaited Asia's reactions to our form of corporate socialism, I watched a lot of CNBC Europe. It is like CNBC America except it's actually good. Segments are not broken into 2 minute shoutfests (apparently Europeans have longer attention spans) and the hosts have bright minds, wit, and challenge their guests. This is where I discovered Hugh Hendry, Chief Investment Manager, of Eclectica Asset Management. Quite frankly the difference between the Europe vs US versions are a direct parallel to how US Congress works versus UK Parliament: here, people give 2 minute speeches before voting to 90% empty Congressional hall with no challenges - there, even the Prime Minister stands in a room without prepared remarks, and has to answer critics/questions and think on his feet in an engaging atmosphere of direct confrontation. Ironic really. But I digress.

Hendry does not have the notoriety of a Jon Paulson but he has been prescient in many of his calls - plus he has agreed with me on many topics (always a bonus). As a guest, he is incredibly engaging with wicked wit (snark) and the ability to dance around (or verbally undress) opponents. He is a bit cocky though. I am posting a series of 4 videos from this month - all before the Fed decision to go Banana Republic but in case you missed it the United Kingdom chose the same path (create debt with 1 hand of power, and buy it with the 2nd hand) so much of what he talks about applies to both countries. He is firmly in the deflation camp and no matter what amount of printing presses, he thinks we're going Japan. Unfortunately for those who disagree with him he has been spot on, on his calls up to here - I don't have firm data on his performance but he says he made 32% in 2008 and is up 10% through March in 2009 which spanked the pants off most professionals worldwide. "Pundit wise" he has been nailing things. At the bottom of this post is an "editorial" he wrote back in November 2008.
  • Inflation will become a reason to worry for authorities again at some point, but they should think about combating deflation right now, Hendry said. "It is coming back in the future. All I'm saying it is just an unprofitable proposition at the time," he said. Betting on inflation is as if "we got a new book and we've read the last page. But if you read the entire novel, it's a different journey."
  • The market has grown for about 30 years and for a long period, it will be "going nowhere," Hendry said, likening this period with the one after the crash of 1929 and with the crisis in Japan at the beginning of the 1990s, despite claims that this time it is different because the world has evolved.


Video #1 - March 1: Quantitative easing does not succeed in an environment where in the U.S., they have debt that is the equivalent of global GDP

Video #2 - Mar 11: A present investment in inflationary assets is "ill conceived and poorly timed," (a very snarky comment about an investment in Potash)

Video #3 - Mar 11: As the Bank of England prepared to launch its asset-buying program Wednesday, Liam Halligan from Prosperity Capital Management and Hugh Hendry from Eclectica locked horns over how quantitative easing will affect the economy. (Hendry starts around the 2:40 mark)

Video #4 - Mar 11: "We are grossly underestimating the impact of the falling sterling, and quantitative easing is going to bring a further fall in sterling," (you can start at minute 5 on this one - and Hendry simply undresses Liam Halligan)

Via Telegraph UK - Encouraged by Wicked Wizard Greenspan, Bernanke Toils at His Printing Press (the full article is worth a read but I will just bring a few points here)
  • The story would feature an apprentice printer called Bernanke. Encouraged by a wicked wizard, Greenspan, he toils at his printing press night and day producing reams of paper money. At first his monetary accommodation seems to bring unbridled prosperity. Boom follows boom, as the business cycle is seemingly abolished, house prices grow to the sky and his political stock rises. In time, the scarecrow is bought-off by crop subsidy; the tin man vacations in Vegas, having refinanced his mortgage for the 13th time. And the sorcerer's apprentice is promoted to top wizard.
  • However, Greenspan, now in retirement, finally reveals his scheme has brought only "bogus riches". The printing presses have created a "zero-sum game" where dollars lose their purchasing power against God's brew of precious metals. The populace begins to save. Spending is reined in. Even the corporate sector suffers. With consumers no longer spending, there are no profits. Shares slump and the fiat kingdom collapses in anarchy.
  • And that is pretty much where we are today.

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