Hugh Hendry: Japan's 'Reflationary' Gain "Is The Last Thing The Global Economy Needs"

Tyler Durden's picture


Aside from being core long gold and oil on the basis of an ongoing global reflation effort by the myopic central bankers of the world; Eclectica's Hugh Hendry is long consumer Staples (as he explains - for a conservative investor, there is little choice but safest, least volatile, most liquid consumer non-discretionary blue chips), long USD (cleanest dirty shirt), long Japanese equities (extreme reflation efforts), and is long the short end of the curve in various sovereign bonds around the world (once again on the basis that weaker data combined with central bank intervention means this duration will benefit). Critically, the outspoken Scot notes that 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. His base view remains that there will be more central bank intervention, more debasement, that a sound money core is key, and taking advantage of liquidity flows in the meantime can be profitable.



Q1 Review 2013 Hendry

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Fri, 05/10/2013 - 12:36 | 3548730 dow2000
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Fri, 05/10/2013 - 14:10 | 3549091 FEDbuster
FEDbuster's picture

Who will go "full Zimbabwe" first?

Fri, 05/10/2013 - 14:33 | 3549185 alphamentalist
alphamentalist's picture

If the object of the game is to get killed or die trying, Japan should win nicely. 

Fri, 05/10/2013 - 12:39 | 3548739 buzzsaw99
buzzsaw99's picture

Long the US $ and no mention of gold. I would think that would be anathema around here.

Fri, 05/10/2013 - 12:43 | 3548749 Charles Nelson ...
Charles Nelson Reilly's picture

huh? from the first sentence....

"Aside from being core long gold and oil on the basis of an ongoing global reflation effort by the myopic central bankers of the world"

Fri, 05/10/2013 - 12:46 | 3548754 buzzsaw99
buzzsaw99's picture

oh right, the "offsetting ;) losses" part. missed that the first time. lolololololol

Fri, 05/10/2013 - 12:55 | 3548778 Thisson
Thisson's picture

It would be a bit more comforting if he had noted that they were "unrealized" losses (as one hopes they are), and still more comforting if he had stated that they are increasing the AU position.

Fri, 05/10/2013 - 13:15 | 3548814 DoChenRollingBearing
DoChenRollingBearing's picture

More comfortable yet if they are increasing their physical Au position.  Paper gold?  Ah, maybe not so good if the physical and paper prices diverge...

Fri, 05/10/2013 - 13:27 | 3548860 smlbizman
smlbizman's picture

speaking of oil....i wonder what the cash price is compared to the paper price.....

Fri, 05/10/2013 - 14:04 | 3549060 CrashisOptimistic
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Call a refinery and ask what they paid for the last shipment. 

It maybe came from Nigeria.  It is priced higher than either Brent or WTI.

Fri, 05/10/2013 - 12:56 | 3548780 CrashisOptimistic
CrashisOptimistic's picture

"Instead it seeks to redistribute global GDP in a manner that favors Japan versus the rest of the world."


This is quite true.  But the contrary reality was that other countries were seeking to redistribute Japan GDP to themselves.  No reason Japan should tolerate that.

Fri, 05/10/2013 - 13:11 | 3548806 DoChenRollingBearing
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Chinese and Korean exporters have so far suffered at the hands of Japan debasing their Yen.  I am going to guess that this will not last too much longer.  Korea just lowered rates.

Europe and the USA more arguably HAVE debased more than Japan, until recently.  I will be very curious to observe how American and European exports of key products to key foreign markets fare in the Currency Wars.

Europe especially is an interesting example to watch.  With the destruction of their economy and serious N - S split, it almost seems inevitable that the Euro devalues or gets destroyed.

These are interesting times.

Fri, 05/10/2013 - 13:44 | 3548959 Panafrican Funk...
Panafrican Funktron Robot's picture

When you look at what Japan is buying with that QE, it seems "other countries" (US/UK financier core) remain the primary beneficiaries.

Fri, 05/10/2013 - 14:02 | 3549054 CrashisOptimistic
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But it's not playing that way.  If they were buying US Ts, the price would rise and yield fall.

I think more likely their yen budget for US Ts is kept fixed and as the yen gets less valuable, they can buy fewer US Ts with that fixed yen budget for such.

Fri, 05/10/2013 - 13:02 | 3548792 Jack Burton
Jack Burton's picture

It's seems like awhile since I've heard from Hugh Hendry.  I tend to take him seriously, some don't, but I tend to favor his opinions.

Japan is a bizzare experiment in money printing. Who believes it will end well? Can printing presses REALLY make a real economy work? Besides, I think we are entering an era where the old conventional economic views are being challanged by new realities. Look around, Europe is sinking, the UK is on the brink, the Middle East is a vast war zone, Japan and the USA have chosen money printing to infinity. Some solid economies built on real economic activity like Canada and OZ are now troubled too.

China is probably the breaking point. Japan is huge, but secondary to the giant new player. I am only sorry I know little of China's real economy, and I think most western economists are the same as me. When they comment on China I think they are in over there heads. China has such a long tradition of doing things their own way, not the way the USA wants it to. If they stumble hard soon, the world economic position is full on depression. Not to mention war is possible any day now and it could spread into unknown results.

Gold looks fucking brilliant to me!

Fri, 05/10/2013 - 13:13 | 3548807 Element
Element's picture

Japan does at least have a major manufacturing export sector, which helps sustain the experiment and hold unemployment down.

Fri, 05/10/2013 - 13:20 | 3548822 DoChenRollingBearing
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China as well has a major manufacturing export sector.  Our company in Peru is a beneficiary of cheap but decent quality Chinese automotive bearings.

Korea has an even larger (as a percentage of its economy) manufacturing export sector.  Ditto re our company in Peru benefiting from Korean bearings.  Hyundai's cars have been improving for years, much of the higher quality is based on better components.

Fri, 05/10/2013 - 14:18 | 3549124 Panafrican Funk...
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"Japan is a bizzare experiment in money printing."

I know you mentioned the US later in your comment, but I thought this was worth focusing on, I've heard a lot of commentary in various circles about how Japan's money printing is "reckless" and "crazy", while at the same time either praising or at least staying silent on the Fed doing the exact same thing, even going so far as to say that the US dollar is a "safe haven" from Japan's money printing scheme.  

"Gold looks fucking brilliant to me!"


Fri, 05/10/2013 - 13:05 | 3548797 DoChenRollingBearing
DoChenRollingBearing's picture

Japan is doing its part to help their bearing companies export more to us.  These Currency Wars help out the exporters of all who engage.  Importers and consumers in Japan?  Maybe not so much.

It is now time for Korea to do its part!  C'mon, Bank of Korea!  Knock that Won down a bit to help your bearing exporters out in Peru.  #Winning!

Fri, 05/10/2013 - 13:08 | 3548800 Element
Element's picture

Velocity since Lehman's and QE to infinity:[1][id]=M2V&s[1][range]=5yrs

Looks a bit like the negative wages growth graph curve Tyler posted a couple of days back.

Where do the Japs want to get the growth share from? China?

Fri, 05/10/2013 - 13:15 | 3548815 W T F II
W T F II's picture

They'll get it from Germany. Japan and Germany are most in direct competition. Think Lexus v Benz or Nikon v Leica...and a whole bunch of other 'value-added' stuff....

Fri, 05/10/2013 - 13:20 | 3548830 Element
Element's picture

They'll take a bit out of Italy and Brit market share too. Autos, motorbikes ...

Fri, 05/10/2013 - 13:12 | 3548805 slaughterer
slaughterer's picture

Nice to see Hugh run-off-at-the-mouth Hendry get fucked on his gold/oil positions just like the rest of the HF world.   An eclectic is one who is one step away from a dilettante.  

Fri, 05/10/2013 - 13:51 | 3548997 Pareto
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I don't think so.  Since Buttonwood conference (over a year ago), he called that the position in gold was not reliable based on price expectations and the consumer's increased propensity to save and pay down debt.  He was never a gold freak based on that discussion.  Don't know why everybody's bashing him.  One of the few that actually takes the Lucas critique seriously in his investment strategy.

Fri, 05/10/2013 - 15:55 | 3549451 Temporalist
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His "position" seemed cynical to me from that conference.  He doesn't favor gold as it wouldn't be allowed to go exponential; he didn't see the ability for gold to give massive returns, like some of the out of money plays he suggests he has would.  It looks to me that he thinks the system will have a managed collapse and lots of currency printing.

Fri, 05/10/2013 - 13:17 | 3548808 W T F II
W T F II's picture

How long can Germany let Japan attempt to 'reflate' at Germany's expense..?? Euro static in the face of a Yen collapse. Maybe Hitler and Hirihito had a secret pact that was 100 yr duration..?

Fri, 05/10/2013 - 13:32 | 3548890 geewhiz190
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HH is full of it-the last time i saw him speak in 2012 he was short Japanese equities as a proxy for China.  he said the best way to play the coming collapse was to be short the Japanese stock market.  Now he says in his letter otherwise.

Fri, 05/10/2013 - 14:00 | 3549040 W T F II
W T F II's picture

Momentum Slug....just ask him what he likes NEXT MONTH in THIS MONTH...!!

Like Gartman...."I said CORN in Indonesian Rupee.." after the fact, of course.

Fri, 05/10/2013 - 13:47 | 3548973 Fuh Querada
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Hendry has a mouth bigger than a drayhorse's ass.
check out the returns

Fri, 05/10/2013 - 14:02 | 3549055 W T F II
W T F II's picture

What's up with the backwards "E"....Clever...!! They musta paid a bundle for that stroke of consultancy brilliance...!!

Fri, 05/10/2013 - 14:02 | 3549053 Kreditanstalt
Kreditanstalt's picture

Sounds like Mr. Hendry is now very much a "mainstream" positioned investor.  And when everyone is on one side of the boat, things which "can't" happen sometimes DO...

Fri, 05/10/2013 - 14:17 | 3549120 q99x2
q99x2's picture

Central banks in the house. My bet is that Bernanke gets gang banged.

Hendry rocks.

Fri, 05/10/2013 - 15:29 | 3549369 earleflorida
earleflorida's picture

"U.S. hoist by its own pivot petard"   by Peter Lee [5/10/13]

'A twisted clockwork-orange of american imperialism failed indoctrination-- swimming upstream in a maelstrom of dictomous malcontent-- in, a disected or for a better word,  bifurcated... east-south china sea-- venture?'

Fri, 05/10/2013 - 17:28 | 3549737 GreatUncle
GreatUncle's picture

Thats the point though ... Japan looking for a bigger market share of the total global GDP.

What is the US,UK,ECB etc. doing with all their financial manipulations? Giving it away ... nope the race is certainly on.

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