Friday, October 30, 2009

Hugh Hendry Resurfaces on CNBC October 2009

We haven't seen Hugh Hendry, hedge fund manager of Eclectica on CNBC since June.  His trading calls have been out of sync with the market during this rally but he weighs in with a series of interesting videos as we see below.  Since the market disagrees with him, he has mostly decided to be on the sidelines; but with a great 2008 under his belt he can afford to sit patiently rather than "risk chasing" to make up staggering losses from the previous year.

His opening salvo touches on a theme we've been repeating for about a year and a half... it's student body trading everyone.  Guessing the direction of the market is 80% of the battle - all correlated, all the time.  HAL9000 style.  I also agree with much of the discussion on volume (who can tell anymore what is going on with so much of it computer dominated) and how the retail investor (or those "with money") have been burned so badly with 2 crashes in a decade, they have largely given up on the equity culture and/or cannot afford to be part of it anymore since their nest eggs have been so damaged. [Feb 5, 2009: Mutual Funds Have Tough Decade]  Many have simply been going to the lowest risk part of the spectrum, mostl likely disgusted with this massive transfer of wealth they've experienced ....on the low man on the totem pole.  [Sep 16, 2009: Mutual Fund Investors Cling to Safety of Bonds, Missing Stock Rally]

Some text to go along; gold, agriculture, low volumes, the "wall of money", and the Chinese yuan are among topics discussed. Hugh of course is always more compelling in video that the written word.   He definitely has some contrary views.

  • Stocks and gold are crowded markets and there is a risk that everybody will want to exit at the same time, Hugh Hendry, chief investment officer at Eclectica, told CNBC.  "I think it's all one way, all one trade, there's no diversification. You're either in the market or you're not," Hendry, who is the second-largest investor in his fund, told "Squawk Box" in London.
  • "I won't jeopardize my capital even for a rally as big as it is today," he added.  Hendry, whose strategy has been to shun the stock market and invest in bonds, said his fund was flat.
  • The remarkable thing about the stock market is "the absence of volume associated with it," Hendry said.  Compared with previous rebounds in stocks from previous recessions, volume in this recovery from the March lows is 60 percent lower, according to Hendry.
  • "I don't believe there's a wall of money," he said. "The bulls will tell you you'd better get in because there's lots of people sitting on the sidelines. But they said that in 2007… they didn't come in, and I don't think they'll come in this time."
  • It is too early to say whether companies' earnings point to a "real" recovery or to a short upwards cycle followed by a downwards one, he said. "Clearly we're having an inventory restocking."
  • Gold is a very good safe haven but, like any other asset classes, only when it's a contentious area, Hendry said.  "I made for my funds 50 percent investing in gold back in 2003" but gold is now a crowded trade, he added. "It doesn't provide any kind of safe harbour for me right now so I'm not there," Hendry said.
  • American companies' earnings are better than expected partially because of the weakness of the currency, according to Hendry.  "The dollar is incredibly cheap. I think sterling is incredibly cheap. Therefore, as an American company your costs are down."
  • But the belief, shared by some analysts, that we are witnessing the beginning of a bull market, is misplaced, Hendry said.  He evoked the consequences of the burden of debt on Germany after the First World War, when France and Britain wanted it to pay war damages, saying "that legacy of debt squashed the vitality of the German and European economy."
  • Today, the various stimulus packages have also left behind a legacy of debt.  "I think we're in a generation where returns disappoint until we deleverage the economy," Hendry said.
  • China will continue to buy US Treasurys, as a way of ensuring their currency is stable, and the fact that the yuan is not freed from the dollar is creating strains on the European and Japanese economies, he said.  
  • "The Chinese are not diversifying the reserves. They cannot diversify, because were they not buying Treasurys…if they weren't buying dollars, their currency would rise."

[Jul 8, 2009: - Hugh Hendry-Thon]
[Jun 30, 2009: Print More Money to Avoid Bigger Slump]
[Jun 18, 2009: Hugh Hendry Eclectica Fund Letter to Investors]
[Apr 28, 2009: The Latest Hugh Hendry]
[Apr 16, 2009: Hugh Hendry, Citiwire Interview]
[Mar 20, 2009: Hugh Hendry of Eclectica Asset Management is Wickedly Good]

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