Hugh Hendry, I Would Recommend You Panic

Even if China doesn't devalue, a euro breakup, drop in trade and passport restrictions are more likely than not given the current trajectory of social mood. If a 20% yuan devaluation is enough to blow everything up overnight, however, then I would recommend Mr. Hendry take his own advice and panic.

ZeroHedge: Hugh Hendry: "If China Devalues By 20% The World Is Over, Everything Hits A Wall"

Tomorrow we wake up and China has devalued 20%, the world is over. The world is over. Euro breaks up. The world is over. The euro breaks up. Everything hits a wall. There's no euro in that scenario. The US economy, I mean everything hits a wall! Everything hits a wall!

The dollar strength that you imagined is devastation because you just eliminated dollars. They're a scarce commodity. You've wiped them out. And China is a pariah state.

It's a 'Mad Max' movie, right. OK, China gets to be the king in 'Mad Max' world. How appealing is that? There is no world after the tomorrow where China devalues by 20%. There is no world. Yeah, it's looney tunes to believe that, people say, 'oh wow, they needed to catch a break.'

Their share of world trade has never been higher. They're facing no pressure, immense terms of trade improvement, and you would destroy world trade. World trade is down 25%. You would probably have passport restrictions, the world is over.

Hugh Hendry Tries to Immanentize the Eschaton

One of the smartest bears out there threw in the towel last month and went long. Now he's talking about Bitcoin. It sounds like he's seriously swung into the inflation camp, but it also sounds like he's trying to immanentize the eschaton. If everyone starts thinking like Hugh, he'll go short once more.

Hugh Hendry Goes Stock, Bitcoin Bull Retard: "Don't Tell Me The Valuation, It Is Trending"

Eclectica’s Hugh Hendry has said he would buy into online currency Bitcoin if it were feasible to do so within his funds.

Hendry has bought 3D printing stocks as a play on trend-driven, QE-fuelled equity markets, and said the rise in the valuation of Bitcoin amounts to “the same thing”.

All US-listed 3D printing stocks are trading on at least 50 times earnings, but Hendry said he has little concern over the sector’s sky-high valuations.

"We are in 3D printing stocks. I say to my team 'don’t tell me the valuations, it is trending,'" he said, speaking at a Harrington Cooper conference at which he also revealed he is no longer bearish.

The power of those trends is such that Hendry said he would own Bitcoin if it was accessible on a regular exchange. The value of the volatile online currency passed $1,000 per coin for the first time last week.

“This is the environment where Bitcoin could go to $1m. There is no qualitative reason, but it is trending. If I could own Bitcoin, I would. If I own 3D printing, it is just the same thing,” he said.

Hugh Hendry's latest letter for Eclectica

April 2012 TEF Commentary

Chinese economy and renminbi hammer gold prices?

Maybe gold's decline is due to the weakening Chinese economy and yuan. The last time the Chinese currency stopped appreciating was in 2008, during the global financial crisis. Gold peaked earlier in the year (just after the Bear Stearns bankruptcy) and Hugh Hendry showed the RMB/Oil correlation. This time, with heavy trading in gold, it may be the commodity that signals global weakness.

In Yuan revaluation will be inflationary for the world and Yuan and Oil—The Bubble Connection? I showed a chart of Hendry's comparison with oil. I have written that gold is the new commodity of choice for the Chinese. Where they were stockpiling oil ahead of the 2008 Olympics, they have been buying up gold since 2009 and accelerating their purchases in 2012, just as they accelerated into 2008. The Chinese are saying their currency is near fair value now, which would lead to an end in appreciation, just as we saw in 2008 and which coincided with the end of the oil rally. Here, I think we can look back to autumn 2011 and the weakening of the Chinese property market, the December trading declines in the renminbi and the recent fall in the yuan and comments from senior leadership, that the yuan is done appreciating for now and the economy is in serious trouble. All of which is bad news for gold.

Update: I found some previous posts to give you an idea of why I think the renminbi matters to gold. From 2010, Maybe this time it should be yuan and gold...

. Oil shot up during the last revaluation because China was building petroleum reserves and energy was a big investment theme. What do Chinese want to buy today? Yes, they still need oil and natural resources, but to my mind, what's more popular (besides real estate, which should also appreciate) is gold.

Hugh Hendry interview

One of the smartest and most contrarian hedge fund managers out there.

Sign of the times

Dancing with the Fund Manager Stars Gets Canceled

Last week, Fidelity changed managers at Magellan once again. This time, it didn't even make the business page. Sure, Magellan (FMAGX) has gone from being the world's largest fund to the ninth-largest fund at Fidelity. Today it has $17 billion and carries, ironically enough, a "one-star" rating from investment researcher Morningstar Inc.

The bigger point is that virtually no manager's departure today would make headlines. Yes, Pimco's Bill Gross will make news someday when he calls it quits, and a few others will cause a stir or a buzz, but the heyday of the "star manager" appears over. "At exactly the market moment when star managers should matter most, they've vanished quicker than a tax dollar in Washington," said Jim Lowell, editor of the Fidelity Investor newsletter. "While there are many managers whose track records are stellar, the days of building industry behemoths on the backs of one star have dwindled to a flickering flame."

Social mood...and also the fact that most mutual funds are long only and must stay close to fully invested. Only in a raging bull market can these retail mutual funds compete with managers with few or no restrictions on their investments. For a comparison, here's this from Zero Hedge:

Hugh Hendry Fund Soars 40% YTD As China Sinks

Hugh Hendry on the euro and interest rates

I believe the European bureaucrats have badly misjudged the public mood. Perhaps they are too closely aligned with the plutocracy of the financial and banking sector. Contrast the mood of the ordinary household with that of my rich hedge fund friends. Today the average European long/short fund is running its most bullish risk exposure in many years and is feeling ebullient regarding the rising tide of corporate profitability as businesses pare back employment levels. My grumble is that I suspect the omnipotent powers of my peers’ central bankers might be found wanting just when they are needed most.

For the shadow of policy error lurks once more. The European Central Bank’s president even proclaimed his satisfaction with his bank’s decision to raise rates back in the cauldron month of July 2008. I salute him for his willingness to subject the bank’s decisions to open scrutiny. But tightening monetary policy amid the deepest economic crisis of the past 50 years was perhaps not his institution’s finest hour. And with headline inflation rates being boosted by relative price rises in the commodity sector, as Chinese policymakers continue to plug 10 per cent into their GDP calculators, another poorly-timed rise in European rates cannot be so easily dismissed.

Europe risks getting it wrong again on rate rises

Hugh Hendry interview

You need Windows Media player to watch. Hugh Hendry interview.

Here's the link if you want to open it using Windows Media Player.
mms://media2.bloomberg.com/cache/vI7cNe02yr6o.asf

He says investors need to separate GDP from wealth when looking at China.

Hugh Hendry's latest letter

Hendry is not changing his bets, but he offers a lot of new thinking about why he holds his deflation positions.The Eclectica Fund - Manager Commentary - December 2010

Farmland

This is why some of the world's top investors have been buying up farmland.

Hugh Hendry profile

“If there was a way to short Obama, I would,” Mr. Hendry said.

The noose is getting tighter and tighter in Asia

Hugh Hendry has a short interview on Bloomberg.
Longer clip below:

"Great Germans want to get rid of all of the political class that represent them. Today in Europe, we have a new Axis of Financial Evil, it is Germany and it is French bureaucrats and politicians who are determined to destroy the wealth and hard working entrepreneurs that we find in this continent."

I would recommend you panic

Hugh Hendry May 2010 Letter

Eclectica Letter May 2010

Hugh Hendry Interviewed by BBC

Scottish roots shine through with his economical choice of automobile.
A day in the life of a financial speculator

What's on his bookshelf?
Money, Bank Credit, and Economic Cycles
Tragedy & Hope: A History of the World in Our Time
Lords of Finance: The Bankers Who Broke the World

Hendry to Stiglitz: "Um, hello? Can I tell you about the real world?"

Brilliant.

Yuan revaluation will be inflationary for the world

It looks as though the talk of RMB revaluation is heating up, thanks to recent tightening efforts by the Chinese central bank. Maybe the Google situation is another factor though, as the situation is ugly politically. Nothing soothes an ornery Schumer or Graham like RMB appreciation.

Hugh Hendry made the case last year for the yuan-oil connection, arguing that RMB appreciation led to oil appreciation. I'm not sure whether oil will be the commodity of choice (or even whether commodities will be the asset class of choice), but I believe yuan appreciation will be inflationary* for global markets.

I reproduced an RMB-crude oil chart to track changes myself. Last time it took six months for faster appreciation to translate into faster oil price increases.


*Update: I should clarify the use of the word inflationary. Inflation is the increase in the money supply of the currency. Only the Federal Reserve can inflate dollars, only the Russian central bank can inflate rubles, only the Bank of Japan can inflate yen (assuming no major counterfeiting operations are going on).

However, the raising of the RMB will be inflationary because RMB is undervalued. The inflation or devaluation of other currencies, especially U.S. dollars, has been hidden by the currency peg. When RMB is revalued, therefore, U.S. dollars come closer to their true lower value. Other countries have inflated as well, though, so what will happen is that China will strengthen versus the world and whatever the Chinese buy most will go up in price for everyone else. In 2008, that was oil.

Now, everyone else is also inflating like crazy, some worse than the Federal Reserve. In the U.S., for one, much of the inflated money is sitting in bank reserves because banks are financially weak and borrowers do not want more debt. There's a big inflation/deflation debate going on and the deflationists are winning right now, because the reserves lack a transmission mechanism to move out from beyond the bank reserves.

Revaluation of the RMB will lead to higher commodity prices, is my best guess. After that, one of two things will happen. One possibility is that it switches the world to high inflation. I don't see a direct link here, but I can't rule it out. More likely, it acts to repeat the 2008 crash, as high commodity prices sap the nascent recovery.

Deflation, Chinese yuan, gold and other connections

I've been busy lately and haven't had as much time to post, but the financial markets continue to behave in a manner that has me planning rather than acting.

If you read nothing else, check out Hugh Hendry's latest letter to investors. He's still in the deflation camp and he raises some interesting points, such as the under-ownership of U.S. Treasuries by Americans, financial institutions and individuals. He compares it to Japan, which saw government debt ownership increase following the 1989 asset bubble peak.

Also see this from ZeroHedge, whither depegging. It's a good summation of the Chinese point of view on yuan revaluation and why one shouldn't expect it any time soon. And on that score, the China Banking Regulatory Commission (CBRC) Chairman Liu criticized U.S. government policy for creating new asset bubbles and following in the steps of Japan.

The yuan could be the critical currnecy. As the "whither depegging" article discusses, if the yuan started appreciating now it could cause an acceleration away from the U.S. dollar. That would cause gold and other commodities to gain and give the Federal Reserve a huge headache. Perhaps a terminal aneurysm.

Also see Mish Shedlock on unemployment "Unemployment Projections Through 2020 - It Looks Grim" and an FHA bailout.

Hugh Hendry on Madoff, 人民币 & More

What if we've already had the inflation?
Most interesting comment comes just before the 8 minute mark (the topic begins around the 7:20 mark):

"In my crazy head, in this day and age when everyone is anticipating inflation, not just inflation—hyperinflation—I'm saying to you...what if we saw it? What if we saw it between 2002 and 2007, and it wasn't the quantitative easing of the Federal Reserve, it was the mercantilistic trading policies of the surplus countries, which kind of suppressed the value, kept their exchange rates cheap and therefore created these foreign exchange reserves, these sovereign wealth funds are really just quantitative easing programs, and if we look at that 5 year period, gold broke a 27-year trend and actually went up. It went from $250 to $1000.

The dollar lost 40% of its value—40! That is one of the biggest collapses in the dollar ever. 40%. Oil went from 10 bucks to 150. (as you said) But maybe we've had all the inflation. And today, prices are falling. Retail prices are falling. And yet, everyone wants to talk about hyperinflation. I'm just curious at these...shifting players, and how they don't seem to be aligned, expectations versus reality are a little bit skewed."

Deflation