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Hugh Hendry Latest Investments And Outlook

Tyler Durden's picture




 

From Hugh Hendry, CIO of The Eclectica Fund.

The Fund was down 18 bps in April. The main positive contributors were tobacco and Japanese equities and short-end interest rate receivers. These gains were more than offset however by the pullback in the US dollar.

We continue to maintain a long equity risk exposure through companies least exposed to the business cycle, whilst favouring receiving rates in developed countries most prone to a loss of economic momentum as other countries, notably Japan, weaken their currencies through the pursuit of QE. We also retain a structural long position in the US dollar and remain long yen assets [currency hedged] via the Japanese stock market.

Despite the near universal willingness on the part of other investors to look wistfully towards the promised resurgence in US economic growth towards the end of this year, the present reality is that the global economy has been deteriorating over the past few months, as highlighted by weaker trade activity and lower PMIs.

With a destocking cycle gaining momentum, and a revival in Japanese exports making life tougher for their overseas competition, European and emerging market economies have demonstrated evidence of further deterioration and unsurprisingly local stock markets have under-performed US indices.

Furthermore, there is growing strain developing in those commodity exporting nations that rely heavily on sales to China, Australia for one suffering from lower Chinese growth.

As China attempts its audacious switch to consumption-led growth, by allowing its currency to appreciate and so boost the purchasing power of its consumers (oblivious, it seems, to the dangers of becoming less competitive in weak export markets), the country's willingness to import boundless quantities of industrial commodities has been curtailed. As a consequence, the Australian export PMI in April contracted for the seventh consecutive month, reaching the lowest recorded level of modern times. And confronted by weaker manufacturing activity and a rising unemployment rate, the Reserve Bank of Australia cut rates to an all-time low of 2.75% last month. The Fund made 30 bps from receiving rates in Australia and we continue to expect more cuts.

As uncertainties in the global economy have increased, we have witnessed a continuation of the US economy's relative durability to the rest of the world. Stronger real GDP growth in the first quarter and positive investor perception of a re-alignment in labour, land and energy costs have combined to make US dollar assets appear more attractive than their international peers. However, our long USD position suffered a short term reversal and cost the Fund 43 bps.

Mindful of the on-going slow down in global growth we have continued to express equity risk by being long low variance equities. This strategy continues to play out positively with such stocks out-performing for the fourth month in a row. The S&P consumer staples index for instance gained 2.9% in April compared to 1.8% for the S&P500, which brings total gains since January to 17% compared with 12% for the S&P500. The Fund recorded a gain of 55 bps from tobacco stocks.

One of our core investment themes remains the fight against deflation launched by Japanese authorities through QE of historic proportions. We believe that such radical QE creates the perfect recipe for a weaker yen and booming Japanese equities. The Nikkei rallied by 11.8% in yen terms in April 2013, the best monthly return since December 2009, and has now gained 61% from the November 2012 low. Against this background, the Fund recorded a gain of 30 bps from Japanese equities.

A weak yen continues to weigh negatively however on neighbouring economies, especially Korea and Taiwan. Since its November low, the won has jumped 22% against the yen and the Taiwan dollar has appreciated by 26% over the same period, reducing the competitiveness of Korean and Taiwanese exports. Faced with a pronounced slowdown in domestic economic activity, the Korean authorities cut interest rates to 2.5% from 2.75%. The battle is now on between other Asian central banks and the BoJ! The Fund made 6 bps from the Korean rate decision and 5 bps from Korean cyclical equity shorts.

Hugh Hendry, CIO

 

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Tue, 05/28/2013 - 20:31 | 3605719 VonManstein
VonManstein's picture

He must have been getting killed, last time he spoke his trades were

--------

USDJPY to 50

Long Gold

Short SP

ouch....

suppose he made a killing shorting Gold miners though otherwise fuking boring.. "oh we made money on the JPY trade" so did everyone on twitter wasnt exactly hard. Just press buy and go away

Tue, 05/28/2013 - 20:35 | 3605748 CrashingDollars
CrashingDollars's picture

I just want it to crash already

Tue, 05/28/2013 - 20:37 | 3605751 LetThemEatRand
LetThemEatRand's picture

Only after they convince everyone that it can't crash because they have proved over and over that they won't let it crash, will they crash it.  

Tue, 05/28/2013 - 21:23 | 3605867 disabledvet
disabledvet's picture

these are State functions now. "they've got all sorts of tricks up their sleeves"...as they should. we are talking one of the most advanced nations on earth here...and integral part of the Western capital structure...these folks are "major league" when it comes to money. the trust Japan has in the USA has been earned (by running plant and equipment, making superior product, selling it.) has the USA "gone on to the next great development scheme" though? Wall Street sure has. If i can fit the entire human population inside the State of Texas http://www.treehugger.com/sustainable-product-design/at-nycs-density-the... then there is a lot in the way of "productive land" that can still be "created" as the bulk of East Asia "moves skyward." if Japan is hyperinflated (whether by accident or set up) then obviously this plan is set back quite a bit. and yes "it is a plan."

Tue, 05/28/2013 - 20:23 | 3605731 fonzannoon
fonzannoon's picture

Meh

Tue, 05/28/2013 - 20:31 | 3605743 nmewn
nmewn's picture

lol...no kidding.

The more complicated the scheme, the more positive outcomes available for the scam artist.

Tue, 05/28/2013 - 20:32 | 3605745 fonzannoon
Tue, 05/28/2013 - 20:39 | 3605753 knukles
knukles's picture

OMG...

And we were supposed to have been led into the promised land of loving our neighbor, tolerance, understanding, kindness, charity, holding hands, singing Kumbayah....
Guess it hasn't worked out too well.

Tue, 05/28/2013 - 23:01 | 3606203 SafelyGraze
SafelyGraze's picture

http://www.theonion.com/articles/lifes-too-short-to-get-hung-up-on-the-m...

this is good advice

I feel better now about fiat and war and debt and surveillance and control after reading this

Tue, 05/28/2013 - 20:43 | 3605763 otto skorzeny
otto skorzeny's picture

where to begin...

Tue, 05/28/2013 - 20:46 | 3605768 fonzannoon
fonzannoon's picture

LOL

Tue, 05/28/2013 - 21:46 | 3605942 nmewn
nmewn's picture

lol...always good to put a real face on an avatar ;-)

Tue, 05/28/2013 - 20:33 | 3605746 knukles
knukles's picture

Is he a Harvard grad?

Tue, 05/28/2013 - 21:47 | 3605949 nmewn
nmewn's picture

Princeton!

Tue, 05/28/2013 - 20:32 | 3605744 CDNX fan
CDNX fan's picture

Never FUCK with the New York banker boys - they are masters at the molten lead enema.

Tue, 05/28/2013 - 20:37 | 3605752 PiratePawpaw
PiratePawpaw's picture

On an unrelated note:

There are a few good minds here, I would like to know their opinions.

If I was considering going "all in" and maximizing my credit (about 250k) to buy physical gold online for delivery:

a) Who would you buy from? (Ive never bought online)

b) Timing?

Tue, 05/28/2013 - 20:41 | 3605760 knukles
knukles's picture

Really bad idea.
Buy a little here and there, for cash, physical, from local dealers, over an extended time horizon.

Tue, 05/28/2013 - 20:48 | 3605775 otto skorzeny
otto skorzeny's picture

no paper trail. speaking of paper trail and a little  OT-the IRS tea party targeting bullshit is widening.

Tue, 05/28/2013 - 23:14 | 3606240 Ahmeexnal
Ahmeexnal's picture

No need for paper trails now. Every LCS and bank teller has a camera linked up to a global facial recognition database. They know who you are, all the websites you visit, all your medical records, even what you had for lunch (they have cameras at all fast food places too) even before you open up your mouth and say "I want to buy XXX ounces of gold/silver".

I've signed "John Galt" on some recent walk in PM purchases.

Tue, 05/28/2013 - 21:07 | 3605787 PiratePawpaw
PiratePawpaw's picture

That is what I have been doing, and plan to continue.

But just as a thought experiment; Many of us expect a turn. I have the ability to capitalize on it.

Just trying to think through how I would do it if I did.

 

edit: Im kinda small town. There isnt much phys here to be had. I would havta go online if I wanted more than a couple oz.

Tue, 05/28/2013 - 21:10 | 3605834 klockwerks
klockwerks's picture

Pawpaw, Texas Precious Metals are really upfront dealers. They say they are the largest but not sure about any of that. I started with  silver and now will start buying rolls of 1/4. 1/2 qz eagles and start stakin thoses. Lead is good to if you started 4+ years ago when it was available. Get a good Liberty safem good to go. If it goes way down in value, oh well, leave it to the grandkids. No reporting on the Gold, silver or lead

Tue, 05/28/2013 - 21:18 | 3605853 PiratePawpaw
PiratePawpaw's picture

Thanks. Lead and copper I have plenty of. (Texas) :) Im also pretty good on silver. (almost my weight).

Im light on gold and just running ideas around about how I might get in further. Have heard of TPM, will keep that in mind.

Wed, 05/29/2013 - 05:13 | 3606563 zhandax
zhandax's picture

Ask the local jewelry store what their premiums are.  You might refer them to Tulving if it sounds excessive and specify what profit margin above that you will accept.

Tue, 05/28/2013 - 20:46 | 3605766 Atomizer
Atomizer's picture

Find a local dealer. Learn margins based buying/selling from spot index. Select a local dealer to conduct business.

Tue, 05/28/2013 - 20:47 | 3605770 fonzannoon
fonzannoon's picture

when I see people coming on here asking where to buy 250k of anything online I get suspicious and question everything I have been doing at the same time.

Tue, 05/28/2013 - 21:02 | 3605815 PiratePawpaw
PiratePawpaw's picture

It was just a question Fonz. notice I said "if".

But SOME of you here are more experienced than my humble self, I was just curious as to your thoughts.

BTW, you were one of the opinions I wanted.

Im not saying I would pull the trigger on such a deal. Or that I would do it based on opinions here.

But I could. It was merely a scenario.

Tue, 05/28/2013 - 21:06 | 3605823 fonzannoon
fonzannoon's picture

Then my apologies Pirate.

I guess where I was going with that was....every single major purchase I have made in one shot has usually ended up blowing up in my face. The last one being shorting treasuries a while back.

I would just wish you luck if you did that. I would adhere to Knukles advice. I follow it myself.

Tue, 05/28/2013 - 21:12 | 3605839 PiratePawpaw
PiratePawpaw's picture

NP Fonz.

Being an old fart I tend to play it safe. (and have)

But being a pirate :) I still dream of hitting it big.

One of these days I will figure out how to do both.

Tue, 05/28/2013 - 21:14 | 3605845 fonzannoon
fonzannoon's picture

If you have made it to being an old fart and still have a good sense of yourself you probably have hit it big and just are too humble to acknowledge it.

Tue, 05/28/2013 - 21:26 | 3605881 PiratePawpaw
PiratePawpaw's picture

In a rural N Texas way; yea Im doin ok.

But I have grandkids to think about, and am not too proud to ask for opinions. (took awhile to learn that)

Tue, 05/28/2013 - 22:34 | 3606110 PiratePawpaw
PiratePawpaw's picture

I read alot of stuff here and value some of it. i guess i just dont know how i compare. im 52 with 5 kids and 5 grandkids. im debt free and own a small house on 1.5 acres on a lake. I have 35 acres of bottom land i lease out for hay. Im still working and trying to put it away. I have plenty of what we talk about here, except gold. I have less than a pound. I think i would like to have more. i believe in gold long term. some of you guys sound like bigger fish than me, i just wanted your opinions.

Tue, 05/28/2013 - 20:56 | 3605797 Mordenkainen
Mordenkainen's picture

You might want to talk first to the guys who tried that in late '08 when the first round of QE was announced. Seemed like a good idea then too.

Wed, 05/29/2013 - 04:53 | 3606567 zhandax
zhandax's picture

Difference is in '08, the feds had bigger fish to fry than who was buying gold.  That was market action.  Now, not so much so.

Tue, 05/28/2013 - 20:46 | 3605769 otto skorzeny
otto skorzeny's picture

all hugh does is buy cig companies-yawn. also-God forbid China STRENGTHEN their currency.

Tue, 05/28/2013 - 20:53 | 3605786 Flakmeister
Flakmeister's picture

Some of the MSM appear to be getting it:

From CNBC ... Even in an Oil Boom, Production Growth Is Slow

Could the U.S. energy revolution fall prey to the law of diminishing returns?

Oil depletion, or the rate at which a new production is sapped from existing wells, is a hot topic in energy circles. It was common fodder during the years where some analysts ominously warned about demand outstripping oil, but is rarely mentioned in the context of America's budding energy boom.

... "You've definitely experienced a slowdown in production growth. It hasn't peaked but it's close to plateauing," said John Hummel, president and chief investment officer at AIS Capital Management. Saying that the U.S. is "living off our inheritance," he cites figures showing that exported oil is on the decline, due in large part to depletion rates.

... "Even if you have a decline, this can continue for decades," John Felmy, chief economist of the American Petroleum Institute said [... we'll lose a bit on every sale, but make it up in volume]

Tue, 05/28/2013 - 21:34 | 3605902 fourchan
fourchan's picture

and we are talking about selling the countrys resources to other countries?

how about lowering our fuel costs?

Tue, 05/28/2013 - 21:21 | 3605836 ZH11
ZH11's picture

How did that 40:1 bet on the ECB lowering below 1% before the end of 2012 work out Hugh?

Must of only had a couple of grand on it whilst the US firm were destroying his hedges, oh well, must be some more speaking gigs where he can rack up the youtube hits.

 

Tue, 05/28/2013 - 23:17 | 3606244 q99x2
q99x2's picture

Darn.

Wed, 05/29/2013 - 05:11 | 3606578 London Dude Trader
London Dude Trader's picture

Yeah right, very funny Mr Hendry. So a few months ago he was going on about that huge short trade he had put on via CDS on certain Japanese blue chips, which he conveniently fails to mention now while he tells us that his best performing trade was long Japanese equities/short JPY...

Wed, 05/29/2013 - 06:11 | 3606612 Going Loco
Going Loco's picture

Glad someone else noticed that; thought it was just me. I vividly remember him saying that there were these big Japanese corporates with net debt equal to small nations and he was shorting the crap out of their bonds. Now it's not even mentioned.

The more I read about macro investing the more I hate it. No way am I a momo investor but I trade short term, in and out, in securities I can understand, depending on the setups I see, and I am surviving quite well. I still read ZH every day but it's more for fun than anything nowadays; the macro calls I see here are no better than anywhere else and I have never made any money out of any of them.

Wed, 05/29/2013 - 07:10 | 3606686 London Dude Trader
London Dude Trader's picture

In my opinion Tyler & Co are mandatory reading and provide a much needed alternative to the mainstream media BS. Mind you, they do get a lot of stuff wrong and in my opinion they are too fixated on gold and overly obsessed with conspiracy theories, but still I find their commentary extremely valuable. 

I believe Macro trading has been very hard for a while due to the huge distortions caused by ZIRP and QE. We are in uncharted territory and a lot of what might have worked in the past no longer does. US markets in particular are in the midst of several cross-currents and govt intervention and are mostly untradable right now and have been for a while. There's way too much noise.  

Frankly the only "sure thing" trade idea I've had for several months was long Nikkei/short JPY/USD, which I put on back in October (long before the talking heads started advertising it in the media.) I closed it last Monday and went massively short the Nikkei via OTM June puts on Tuesday. I was certain the market was about to crash. The Nikkei's 9-day RSI on Wednesday morning shot up to a ridiculously high 92 (!!!), so the market was extremely overextended, and that's the main reason why it crashed, whatever the pundits may say the catalyst was.  I've traded Nikkei futures for 12 years and from the market's behaviour it was clear to me that it was on the verge of a major sell-off... 

Wed, 05/29/2013 - 06:56 | 3606656 London Dude Trader
London Dude Trader's picture

In my opinion Tyler & Co are mandatory reading and provide a much needed alternative to the mainstream media BS. Mind you, they do get a lot of stuff wrong and in my opinion they are too fixated on gold and overly obsessed with conspiracy theories, but still I find their commentary extremely valuable. 

I believe Macro trading has been very hard for a while due to the huge distortions caused by ZIRP and QE. We are in uncharted territory and a lot of what might have worked in the past no longer does. US markets in particular are in the midst of several cross-currents and govt intervention and are mostly untradable right now and have been for a while. There's way too much noise.  

Frankly the only "sure thing" trade idea I've had for several months was long Nikkei/short JPY/USD, which I put on back in October (long before the talking heads started advertising it in the media.) I closed it last Monday and went massively short the Nikkei via OTM June puts on Tuesday. I was certain the market was about to crash. The Nikkei's 9-day RSI on Wednesday morning shot up to a ridiculously high 92 (!!!), so the market was extremely overextended, and that's the main reason why it crashed, whatever the pundits may say the catalyst was.  I've traded Nikkei futures for 12 years and from the market's behaviour it was clear to me that it was on the verge of a major sell-off... 

Wed, 05/29/2013 - 07:13 | 3606693 Going Loco
Going Loco's picture

Agree with all that, and the good thing is that when ZH runs a BS article there is usually someone with actual knowledge who calls them out - I saw you do that on the ridiculous gold futures margin piece recently.

Going short the Nikkei on Tuesday was brave - the RSI7 hit the same mark twice in 2012, end February and mid December (according to Stockcharts), and a short then wouldn't really have worked.

If you don't mind me asking, assuming you are in the UK (as I am), what brokerage platform do you use for puts on foreign indexes? I did have an Interactive Brokers account which let me do that but I closed it.

Wed, 05/29/2013 - 08:55 | 3606987 London Dude Trader
London Dude Trader's picture

I shorted the Nikkei via June puts traded on the Osaka Stock Exchange. The Nikkei options are extremely liquid and like the futures they're traded for 18 hours each day. The rally in the Nikkei was going parabolic and I agree that there was a risk the market might rise even more, that's why I used options rather than futures. With over three weeks left to expiration I figured the June puts offered the best risk/return if the correction I anticipated occurred within the next few days. So I closed the trade the day of the crash in the Japanese after market (i.e. during EU/US market hours) when the Nikkei futures took another sharp dive. I sold the options for about 13 times the original premium. I could hardly have timed it any better :-)

I use Interactive Brokers. I've been with them for 13 years and they're miles ahead of the competition on every level.

Wed, 05/29/2013 - 12:28 | 3607740 Going Loco
Going Loco's picture

Thanks. See you on another thread some time!

Sat, 06/01/2013 - 00:32 | 3616112 bdub2
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