December 03, 2013

"Hendry: I would buy Bitcoin if I could"

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

Hendry (pictured) 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.

Hendry added equity market fundamentals do not matter at a time when policy is misaligned, emphasising instead the ‘feedback loops’ created by US quantitative easing.

“There is no point arguing about the one-way causality we [as an industry] believe determines our processes. That is all about a belief this is rational.

“We want to believe markets go up because the economy is improving, because corporate cashflows are improving. But when you get monetary disturbances creating loops, it does not really matter.”

Meanwhile, although the hedge fund manager remains concerned over the fate of China, despite his bullish turn, he acknowledged trend-driven investors could also play Chinese stocks effectively.

“You could go long consumer discretionary, or long Chinese internet stocks, and hedge out the beta,” Hendry said.


Hugh Hendry is a fund manager at Eclectica Asset Management. He has become prominent in the United Kingdom for his commentary on the financial crisis. Hendry has been referred to as "the most high-profile Scot in the controversial (Hedge Fund) sector."

November 25, 2013

'I can't look at myself in the mirror': Hendry reveals why he has turned bullish

Eclectica hedge fund manager Hugh Hendry has said he has been forced to leave his bearish outlook behind as he faces up to a market “which only makes sense through the prism of trends”.

Speaking at Harrington Cooper's 2013 conference this morning, Hendry (pictured) said he is no longer fighting the "two-way feedback loop" which is continuing to boost risk assets.

That centres on the currency war being played out between the US and China, in which US QE prompts dollar-denominated investment to head to China, and China fights the resulting upwards pressure on its currency by manufacturing an investment boom.

Hendry said this creates a "global supply glut", leading to falling US inflation expectations (as this supply far outweights US domestic demand) - which in turn prompts the Federal Reserve to loosen policy once again.

"I can no longer say I am bearish. When markets become parabolic, the people who exist within them are trend followers, because the guys who are qualitative have got taken out," Hendry said.

"I have been prepared to underperform for the fun of being proved right when markets crash. But that could be in three-and-a-half-years' time."

"I cannot look at myself in the mirror; everything I have believed in I have had to reject. This environment only makes sense through the prism of trends."


Hendry said he is looking for ‘auto-correlations' that benefit from this feedback loop.

Though he first began turning more positive on the likes of US and Japanese equities last year, Hendry suggested this morning the current environment created more counter-intuitive opportunities.

"This applies to European banks, Greek equities, Spanish equities. You have got to be in things that are trending," he said.

The manager's Eclectica Absolute Macro fund had a 64% value at risk equity allocation in September, up from 45% in August, with December 2013 Japanese TOPIX index futures his biggest single holding on a VaR basis.

Addressing attendees this morning, Hendry said his comments would take on a "confessional" tone, and admitted his performance over the past year had been "at best, mediocre".

Hendry's CF Eclectica Absolute Macro fund has lost 2.6% in the nine months to 30 September, according to the firm.

Risks to his reputation

The manager acknowledged his changing stance may be viewed by some investors as a 'top of the market' signal, but said he is not concerned by the prospect of a crash.

"I may be providing a public utility here, as the last bear to capitulate. You are well within your rights to say ‘sell'. The S&P 500 is up 30% over the past year: I wish I had thought this last year."

"Crashing is the least of my concerns. I can deal with that, but I cannot risk my reputation because we are in this virtuous loop where the market is trending."

Hendry said he retains a degree of safety within his portfolio by hedging out his bullishness through trades such as high beta US stocks versus emerging market stocks.

"There is the constant danger that Western bankers turn bullish again, start leveraging up, and we see money go into productive assets, not financial assets," he said.

"If that happens and the Fed does tighten policy [as a result], it will just be really bad news for emerging markets."


Hugh Hendry is a fund manager at Eclectica Asset Management. He has become prominent in the United Kingdom for his commentary on the financial crisis. Hendry has been referred to as "the most high-profile Scot in the controversial (Hedge Fund) sector."

August 10, 2013

Hugh Hendry Investment Outlook - June 2013

From Hugh Hendry, CIO of The Eclectica Fund.
This year we have pursued five macro themes: long the US dollar, short China, long Japanese equities, long low variance equities and long interest rate
contracts at the short end of G10 fixed income markets.

Towards the end of May, however, the Fund experienced a sharp rise in its volatility from an annualised rate of 4% to 7%. The invisible regime of low volatility and low correlations that had been so supportive of risk markets for at least the last year started to become unhinged.

The catalyst came from the announcement that the US Federal Reserve may soon tighten its monetary policy following yet another better than forecast US employment figure. The jobless rate in America is down to a four-year low. This purported change of policy however created a chain reaction that spread across global financial markets.

As cross-asset correlations rose, the Fund became less diversified. This necessitated that we reduce our risk exposures across all trades; G10 receiver trades and Japanese and low variance equities were closed completely as their severe price reaction challenged their intermediate up-trends.

As a consequence, the Fund fell by 2.1%. The main negative contributors were the short-end interest rate swaps and afore-mentioned equities, offset by modest gains from FX positions as the dollar strengthened and volatility trended higher in EM currencies.

In the Far East, by contrast to the bullish American outlook, the evidence of an economic slowdown in China continued to mount and commodity exporting countries that rely heavily on sales to the Middle Kingdom came under heavy selling pressure. China accounts for 27% of total Australian exports, mostly raw materials, and the country finds itself in China’s slipstream. Unfortunately, in a break with the recent past, it was the currency markets, and not our 3yr interest rate contracts, that benefited the most from the move. The Australian dollar recorded its seventh worst monthly performance (-7.7%) of the past 20 years. But instead of enjoying some of this move, the spectre of tighter US monetary policy contaminated the outlook for rates globally and our 2y1y swap positions rose rather than fell costing the Fund 57bps.

In Japan, rising bond yields were also the culprit. Volatility surged as Japanese 10-year rates went from 30bps to trade over 1% at one point in May, before closing at 0.85%. As it costs the government about a quarter of its total tax revenues just to pay the interest on its debt at current levels, the unsettling disorder in the bond market was rapidly interpreted as a threat to public finances and GDP growth. Japanese stocks saw heavy profit taking with the TOPIX recording a 17% slide in late May. The Fund recorded a loss of 31bps from Japanese equities.

Heading into June, we retained a slightly larger short China position, we boosted our long position in the US dollar and re-directed it to reflect an outright short of emerging market currencies.

We also transformed our Australian rates trade into a bullish curve steepener (that is to say, we added a short ten year leg). A similar position was initiated in Korea. These countries remain unique in having a developed world FX profile and overnight rates which remain high by international standards, giving the authorities considerable leeway to cut overnight interest rates. Ten-year rates, however, are liable to be dragged higher by US Treasuries. So if the respective central banks do react to the slowdown evident in China by cutting short term rates, this could give rise to further steepening.

Copyright © Hugh Hendry, The Eclectica Fund

Hugh Hendry is a fund manager at Eclectica Asset Management. He has become prominent in the United Kingdom for his commentary on the financial crisis. Hendry has been referred to as "the most high-profile Scot in the controversial (Hedge Fund) sector."

June 17, 2013

Hendry: Japan's return is bad news for the global economy

Hugh Hendry believes that Japanese equities will continue to go up in 2013 but he also increased bets that Japanese recovery will have harmful effects on other sovereign bonds. He has bought TOPIX index futures and shares in Japanese property companies to exploit the weakening currency. But Hugh Hendry, same as Jim Rogers said that Japan's initial success at revitalizing its economy will be someone else's loss. "Japan's monetary pivot towards QE will not create economic growth out of nothing. Instead it seeks to redistribute global GDP in a manner that favors Japan versus the rest of the world. This is the last thing the global economy needs right now," Hendry said.

The manager pointed to PMIs that suggest business activity is again slowing, and said the combination of this trend and a resurgent Japanese export sector "does not bode well for economies in Europe and the rest of Asia".

Hendry said he has started buying short-dated sovereign bonds from issuers in Australia, Europe, Korea, Switzerland and the US.

Other investment themes

Hugh Hendry has been buying US blue chips, focusing on those with the least debt on their balance sheets.

"Given our longstanding caution regarding the prospects for the global economy, we have looked to express equity risk by being long cash generative businesses with the strongest balance sheets and the least economic sensitivity," he said.

After bank accounts confiscation, bonds with no yieleds and gold going down, people worried about inflation it seems that the stock market might start its next asset bubble as money has nowhere to go.

"It could be argued that for such an investor, all roads lead to the safest, least volatile, most liquid consumer non-discretionary blue chips on Wall Street, which provide a 3% dividend income payable in dollars."

A long trade on the USD has also been a major position for the Eclectica fund, with Hugh Hendry highlighting the relative strength of the US economy as a major investment theme in the portfolio.

He says that unlike many other countries, the USA has dealt with its housing bubble, recapitalized banks, and took the pain as wages there went down while in Asia up. Not only is this but shale gas providing temporary boost to the USA productivity and industry.

Hendry also stated that the dollar has become less negatively correlated to the performance of the stock market, in a break from its recent correlation traditions.

"It is too early to draw anything firm from this, but the sight of the stock market and the dollar rising in tandem looks more like the regime which accompanied the last two dollar bull markets of 1980-1985 and 1995-2001," he said.

Hugh Hendry is a fund manager at Eclectica Asset Management. He has become prominent in the United Kingdom for his commentary on the financial crisis. Hendry has been referred to as "the most high-profile Scot in the controversial (Hedge Fund) sector."

April 18, 2013

Hugh Hendry Still Bullish On Gold

Even though Hugh Hendry stated during a conference in 2012 that he has no idea where gold is going for the foreseeable future, he continues to be bullish on the metal and expect it to go much higher in the future.

Hugh Hendry is a fund manager at Eclectica Asset Management. He has become prominent in the United Kingdom for his commentary on the financial crisis. Hendry has been referred to as "the most high-profile Scot in the controversial (Hedge Fund) sector."