Hugh Hendry December Commentary: Must Read

Tyler Durden's picture

This evening's must read report comes from Hugh Hendry, arguably the most creative and free-thinking money manager in the world, of The Eclectica Fund.

Manager Commentary, December 2010 (pdf)


h/t Michael

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Spalding_Smailes's picture

I'll sell him my US Steel at $70.00-$100.00.


...."American Iron & Steel Industries reported that, in the week ending November 27th 2010, US domestic raw steel production was 1.652 million tons while the capability utilization rate was 68.3%. Production was 1.469 million tons in the week ending November 27th 2009, while the capability utilization then was 61.4%. The current week production represents a 12.5% YoY increase from the same period in the previous year.

Production for the week ending November 27th 2010 is down by 2.8% WoW from the previous week ending November 20th 2010 when production was 1.699 million tons and the rate of capability utilization was 70.3%.

Adjusted YTD production through November 27th 2010 was 80.307 million tons, at a capability utilization rate of 70.2%. That is a 40.7% YoY increase from the 57.059 million tons during the same period last year, when the capability utilization rate was 50.5%."....

Fat Ass's picture

Well that was weird.

DoChenRollingBearing's picture

OK, it was kind of weird, but I thought it was of great interest.  Nowhere to hide, sounds about right to me.

About the only thing he did not mention was gold.  Gold is good place to hide, everyone should have some.  Check out FOFOA's splendid new piece:

blunderdog's picture

He mentioned it, just seems like his imagination falters a bit when considering it. just couldn't possibly be...never...that a commodity up by a factor of four over the past decade is The Next Big Trade!


Lux Fiat's picture

What was the factor increase of gold in the 1970s?  Granted it started from a unrealistically controlled price....hmmm....

ViewfromUndertheBridge's picture

He mentioned gold...going up every year for a decade, only surpassed by the Nikkei in the 12 years to 1989...he just doesn't offer a conclusion other than he thinks it is unlikely to be the next great trade.

He is short Japan.

dehdhed's picture

he's said in cnbcw interviews that he thinks japan in due to come out of a 22 year cycle and begin a bull run.  i think he used 22 years but not sure .. maybe it was 26 or something in between.    perhaps he is short japan but it would seem to contradict his previous stance.

Sespian's picture

I liked this from FOFOA:

It is certainly fair play to place your bets on the ability of government to overpower the gravitational pull of value. But when you do, you should be aware that you have just purchased the opposite of real value. And to understand why this may be detrimental to our financial wellbeing, we must first understand the concept of value.

So true, and so easily missed by many.

flacon's picture

FOFOA is a genius because he explains that if you jump off a building you will eventually meet the ground. So obvious and yet so obviously obfuscated by the "modern mind". I read every FOFOA article - despite his verboseness. :)

Billy Shears's picture

But wasn't the point of much of what he said that a massive defaltion was inevitable because of the gargantuan private sector debt...and that Japan was the ultimate example of what can go wrong. The prescription being that debt deflations are terminal until you have a bankruptcy. No amout of money printing without confidence in the economy to create real wealth will induce people to borrow at any rate. No borrowing, no debt, no multiplier, no economic inflation?

Brutlstrudl's picture

It's demand, bitchez. Yo Bill. When you gettin' back with the band? it's been a while

Lionhead's picture

Long, poorly focused & rambling rubbish.  If this chap was my fund manager, I would immediately remove my capital. Anyone that cannot think or write clearly is flawed, no matter how they may think of themselves. Waste of time to read...

Arius's picture

well, not everyone has a lion head...most of us have a man head.

Mark Medinnus's picture

"Well, not everyone has a lion head...most of us have a man head," replies the blockhead.

Lost My Shorts's picture

Yes. Hendry likes to embellish his stuff with literary flourishes that add very little to the argument, and only seek to entertain other would-be literati who share this acquired taste.  Also, you need to work hard to extract the argument, though it is possible.

It seems that he is:

1) Sticking to a deflationist outlook despite QE2 to N.  Thinks bankruptcy would be better for the real economy, but that policy makers won't go there.  Hence:

2) Short steel on grounds that demand will remain weak and over-capacity will squeeze profits.

3) Short Japanese corporate credit on grounds that their endless QE journey is about to meet a bad end, and the bankruptcies they have worked so hard to forstall will happen anyway, contrary to market expectations.

4) Long Western government bonds on grounds that our endless QE journey is just starting, and QE2, 3, 4 etc. will keep rates down.

Or something like that.  True, it could be more clear.

Lost My Shorts's picture

Further note -- you could accuse Hendry (when writing) of posing as a sort of Delphic oracle, trying to baffle people into thinking his obscure and round-about talk conceals some great truth.  (Hendry as talking head on TV is much more pithy and provocative.)

This letter actually struck me as more clear than his previous offerings, and the reasoning more of a stretch.  Perhaps he is doing the typical money manager thing of talking his book, describing the logic that got him into his current positions, but neglecting to mention that he is now actively bailing out of them.

scratch_and_sniff's picture

Granted, he does take a while to get the ball rolling, a summary of key points would probably be helpful to his busier clients, rather than assuming that everyone has the time to muse away the hours wearing a cravat and smoking jacket. But after all, he is running a well respected hedge fund, so he has to sound like he is putting the effort in. As for the "Anyone that cannot think or write clearly is flawed, no matter how they may think of themselves" comment, well clearly you are just an uppity little spigot. I can think of no better treatment for you than to put you over my knee and slap the arse off you until you wince.

YHWH's picture

I'd rather see a video.  The guy is a gifted speaker.

goldmiddelfinger's picture

Haud yer wheest ya fykie! Ees doun a' pub!

GoinFawr's picture

hahah! I read the whole thing with that accent on my mind. Nice one!

Rainman's picture

Excellent read....especially Japan's two decade effort to do anything to avoid purging bad debts from their system. Debt for Japan now at 6x GDP means Ben has a way to go to match the Japanese non solution.

Monetary Lapse of Reason's picture

No comparison.. most of Japan's debt is held internally.. that combo along with ongoing QE means bond vigilantes held at bay.  In the US... not so much.

Mark Medinnus's picture

Hugh's Psychic Blindness is self-referential.  He whistles and hums, but he hums to whom?  My suggestion: lose the faux literary flair and launch into your subject with some basic word analysis.        

goldmiddelfinger's picture

"There are no policy prescriptions for debt deflation."

My 13 year old knows this by now. (I haven't spoken to the older boys since the COH Black Ops release to confirm it as collective dogma)

Spitzer's picture

So are you going to buy lots of Euro's before the first country defaults ?


Orly's picture

"I pass death with the dying and birth with the new-washed babe

and I am not contained between my hat and boots."- Walt Whitman

goldmiddelfinger's picture

Birth was the death of him-

Samuel Becket

Spalding_Smailes's picture

Who you calling ugly, sucker ?

-Aunt Esther

I'm calling you ugly, I could push your face in some dough and make gorilla cookies.

-Fred Sanford


My body was blessed by Mother Nature.

-Aunt Esther

And as you got older, it was cursed by father time.

-Fred Sanford

Bananamerican's picture

Fred Sanford, you a messy fool 

-Aunt Esther

Uh, and, you a cessy pool!

-Fred Sanford

Spalding_Smailes's picture

“Man was put on this earth to eat meat...The Bible says so dumbbell...I mean look it up will ya? All them old bible peoples, they was always eating meat; soon as they found out eating apples was wrong...It's true, on special occasions: goats and lambs. Who the hell ever hear of sacrificing a head of lettuce? You?”

-Archie Bunker


“I never said a guy who wears glasses is a queer. A guy who wears glasses is a four-eyes; a guy who's a fag is a queer.”

-Archie Bunker

Hugh_Jorgan's picture

The so called "expert" ivy-league economists were all taught revisionist history and Keynesian drivel as the economic gospel. They weren't shown the opposing theories. They never learned real debate or discourse. They were taught what to think, not how. 70% of your professors are second generation ideologues that never leave their circle-jerk of elitist cronies long enough to try to validate any of their beliefs or worldviews. These are the houses of insanity that pass for instituions of higher learning in the 21st Century. I would say that "we might as well have the janitor making the calls at the Fed, but eventually the janitor would figure out that his magic wand wasn't working and would try something new. We are screwed, bitchez...

liberal sodomy's picture

Hugh Hendry is my second favorite person in the world, just after Tyler.

BrosMacManus's picture

with that avatar, Tyler and McHugh should be very, very afraid...


DavidC's picture

Joe Saluzzi's up there as well.


Phineas Gage's picture

For all the Hendry fans, there was a short clip of a BBC interview posted on ZH a few months back on the demise of the hedge fund industry.  Part I (and II) of the full interview can be found here:

In a rare occurrence, HH was out jabbed and out classed in this exchange.  He seemed unprepared and was disarmed by the interviewer.  Hendry is always at his best when he is countering.  He should save his energy for the frauds and buffoons out there.

ViewfromUndertheBridge's picture

Thanks for posting the link.

Having watched the 3 interviews on BBC Hardtalk I disagree with you, Hugh came out smelling like a rose, and I would encourage anyone who likes Hugh Hendry to watch them.

It was an insight for me on the extent to which journalists still have no clue as to what is going on. They should rename that show "Ret(H)ard-Talk"...the interviewer had preconceptions that he kept returning to as if he was not listening to HH at all.

Phineas Gage's picture

Agreed, the interviewer had an agenda, but Hendry seemed to waffle and struggle.  Not his best showing.  He should/could have buried that journalist.  He came off a bit flat-footed.

flacon's picture

I read his looong missive. It did come across as waffling - and it's hard to tell what his conclusions are vis-a-vis: what should I do if I have wealth that I don't want to be confiscated. He's a contrairian, but I don't know what else to say. 

putbuyer's picture

Wow. He is such an amazing writer and brainiac. 3rd to last paragraph left me in awe. Never heard such an analysis before. Still trying to decipher it - the one that starts with "The only hope". The Chinese would accept an almighty paper loss? Could HH be the wiser? The bet of the century and what if he is right - interesting indeed. Wonder what Faber would say...

Ted K's picture

Two reasons I like ZeroHedge,  you give commenters a lot of freedom with comments, even allowing the wilder stuff so people can feel freedom to express their emotions, and "the shit" (When I say "the shit" I mean in positive way) like Hugh Hendry.  To be able to download Hendry and Rosenbergs, and Seth Klarman and these guys.  Hey I will criticize Tyler Durden when he is wrong--but I give Tyler Durden his "props" on this.  Tyler this type of stuff on a Friday night is great. Thanks from the investment community out here.

Bolweevil's picture

"Teddy K ladies and gentlemen. Let's give it up for Teddy K." President and CEO Globocom

Arius's picture


Teddy K - another American Titan

PeterSchump's picture

The only criticism for ZH is for the very bearish equities bias for the last year, but they have never tried to silence any of the bulls here.  The gold call has outperformed equities, so my argument is only valid if they were recommending shorts, which ZH never did. ZH recommended staying away from equities. 

Long PM's and staying away from equities on either side would have made many people many $$$$'s.  Long equities since March 2009 is second best.  Short anything is certain death.  Anyone paying attention to HeliBen could have seen that last train coming.  Seriously, when in history has everything correlated as today?  Pick a long and win. 

This will end badly. I am confident that ZH, in the longer term and unfortunately for all of us, will be proved correct. The eventual direction of equities and most everything else will resume the trend downward.

YHWH's picture

On your knees, cretin.  Mr. Durden requires fellatio.