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Hugh Hendry Suffers Biggest Monthly Loss Since Inception

Tyler Durden's picture





 

Having thrown in his bearish towel in December, the self-proclaimed "last bear standing" has had a tough January. His plan, to "just be long pretty much anything" appears to have back-fired (for now) as Eclectica reports a 3.6% loss in January - the worst month since the Fund's inception.

 

 

His largest loss was on a long Japan theme (leveraged) and that was somewhat offset by gains in his short emerging markets and short China themes.

 

It appears nothing hs changed from Hendry's December perspective of the inexorable melt-up in developed markets thanks to central bank largesse (247% of NAV exposed to stocks) though he does note "renewed turmoil" which, we suppose, merely supports his thesis longer term.

 

Via Eclectica,

January witnessed renewed turmoil in emerging market equities and currencies. The Fund profited from positions within our Short Emerging Markets and Short China themes (+0.9%).

FX positions within these themes generated a positive return of +0.3% as our “good versus bad EM” FX basket posted gains, largely driven by shorts against the Turkish lira and the Russian ruble. Equities provided an additional +1.4%, led by short exposure to Chinese and EM indices. These gains were partially offset by losses on curve steepeners in Australia and Korea, which were closed out during the month.

Developed market equities suffered sharp sell-offs over the course of the month as emerging market woes spilled over into global risk assets. The Fund’s core Long Developed Markets theme suffered as a result (-2.0%). Developed market equities cost the fund -1.7%, led by weakness in internet and robotic stocks. Additional call option exposure to US and European indices cost a further -1.3%. Equity losses were partially offset by gains in front-end rates in the Euribor and Short Sterling curves, generating a positive contribution of +0.8%.

The largest detractor to performance came from our Long Japan theme (-3.0%). Losses on Nikkei call options were the single biggest drag on performance during January (-2.2%), as the underlying index fell -8.5%. Cash equity positions in Japanese brokers and property shares cost a further -0.8%.

 

 

From Hendry's December letter...

Last bear standing? Not any more...

I know what you are thinking. You are thinking that the last bear is capitulating. It isn't a good sign. Maybe it is that simple. But I think it is a little more complicated. We, and I accept we aren't the first here, sense that US monetary officials may now be willing to subordinate the demands of their own economy to the perils confronting emerging market economies. If that is the case, the great peril is not that the Fed finally tightens monetary policy and US stock prices suddenly tumble from what are very obviously overpriced levels. Would that it were – our curmudgeonly portfolio structure (think dynamic volatility targeting and stop losses) works well with big stock market reversals. Instead the greater peril is that the current backdrop will turn out to mark a rapid acceleration in the ongoing move to the upside. A hint that this might be the case comes from looking back through the 113 years of price data for the Dow Jones Industrial Average. We have done this (so you don't have to), searching along the way for the comparable periods that fit most tightly to the last 500 trading days. What is clear is that periods of trading similar to the one we have seen over the last two years don't often seem to end quietly: they boom big time or they crash. Which is it to be this time? Looking at the markets of 1928, 1982 or even 1998, all of which have scarily similar looking historical charts to today's, we wonder if it won't be both. Starting with the boom bit.

Let's look at what happened in 1998. All sorts of market moving events were shifting the sands. There was the fall out from the Asian Tiger crisis. There was Russia's local currency default. And there were the event risks of the collapse of LTCM and the Y2K scare. Together these things ensured that US monetary policy was set far too loose for the US economy itself. And the result? A parabolic trend to the upside in equities that destroyed anyone who chose to stand in its way. This is what I fear most today: being bearish and so continuing to not make any money even as the monetary authorities shower us with the ill thought-out generosity of their stance and markets melt up. Our resistance of Fed generosity has been pretty costly for all of us so far. To keep resisting could end up being unforgivably costly.

 

As a reminder, here is Hendry's conclusion from his December letter:

Just be long. Pretty much anything.

 

So here's how I understand things now that I am no longer the last bear standing. You should buy equities if you believe many European banks and their sovereign paymasters are insolvent. You should buy shares if you put a higher probability than your peers on the odds of a European democracy rejecting the euro over the course of the next few years. You should be long risk assets if you believe China will have lowered its growth rate from 7% to nearer 5% over the course of the next two years. You should be long US equities if you are worried about the failure of Washington to address its fiscal deficits. And you should buy Japanese assets if you fear that Abenomics will fail to restore the fortunes of Japan (which it probably won't). Hey this is easy...

 

And then it crashed

 

I have not completely lost my senses of course.

 


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Fri, 02/21/2014 - 15:36 | Link to Comment FOC 1183
FOC 1183's picture

Might want to put those mirrors back up

Fri, 02/21/2014 - 15:39 | Link to Comment fonestar
fonestar's picture

Oh those poor, humble hedge funders.... whatever will they do?

Fri, 02/21/2014 - 15:42 | Link to Comment outamyeffinway
outamyeffinway's picture

Should have bought the miners instead Hugh! Remember that crazy, idiotic trade? Well, you were right for a little while.

Fri, 02/21/2014 - 15:46 | Link to Comment Divided States ...
Divided States of America's picture

Yeah well, when you go all-in on 3d printing stocks, thats what you get u hugH moron.

Fri, 02/21/2014 - 15:47 | Link to Comment TheTmfreak
TheTmfreak's picture

HOWS THAT MOMENTUM TRADING WORKING OUT?

Oh whoops....

Fri, 02/21/2014 - 15:59 | Link to Comment spastic_colon
spastic_colon's picture

my advice to hugh is to go fourple leverage long equities today using options at 3:29pm and close at 4:00:01pm to make up for all of his Jan losses.....sarc on for fiduciary purposes, otherwise off.

Fri, 02/21/2014 - 16:45 | Link to Comment kliguy38
kliguy38's picture

Hugh hendry is a complete putz.......he pulled out of PM and PM equities at the EXACT bottom.....thanks dipchit

Fri, 02/21/2014 - 18:03 | Link to Comment BKbroiler
BKbroiler's picture

He got burnt on the way up and the way down.  Missed all of 2013 then reversed his position before a correction.  Something to be said for sticking to your guns... only the righteous shall pass

Fri, 02/21/2014 - 15:52 | Link to Comment fonestar
fonestar's picture

How has Bitcoin performed compared to miners?

Fri, 02/21/2014 - 16:06 | Link to Comment dryam
dryam's picture

When are you going to stop posting your rambling incoherent thoughts? Is it your mission to clutter up ZH forums?

Fri, 02/21/2014 - 17:23 | Link to Comment Supernova Born
Supernova Born's picture

He/they are succeeding.

RELENTLESS FUCKING TROLLING.

Fri, 02/21/2014 - 18:32 | Link to Comment fonestar
fonestar's picture

It really has become relentless, hasn't it?

Fri, 02/21/2014 - 17:27 | Link to Comment HyBrasilian
HyBrasilian's picture

Rumor has it that the MT GOX mining operation & exchange has run into financial difficulties...

~~~

Wyatt Earp in on the way to make sense out of it all...

Fri, 02/21/2014 - 16:06 | Link to Comment Toolshed
Toolshed's picture

Depends on which miners and what you want to compare. Does bitcoin still exist? ;)

Fri, 02/21/2014 - 16:00 | Link to Comment Freddie
Freddie's picture

He should just stick with "growth" stocks like Tesla, Tweeter, SuckBook and Priceline.

No hedge fund manager ever got fired buying Elon Musk ponzi companies back by the O police state.

Fri, 02/21/2014 - 16:09 | Link to Comment Toolshed
Toolshed's picture

+1 for stick-to-it-ivness fonestar. I like you for your twisted mind and humor. That half brother of yours, bcking on the other hand needs his hair sharply parted by a fire axe.

Fri, 02/21/2014 - 15:38 | Link to Comment Seasmoke
Seasmoke's picture

Well that just wiped out ALL of his 2010. 

Fri, 02/21/2014 - 15:41 | Link to Comment Bam_Man
Bam_Man's picture

My advice to his remaining clients:

"I would recommend you panic".

Fri, 02/21/2014 - 16:04 | Link to Comment disabledvet
disabledvet's picture

"what comes after you can't look yourself in the mirror?"

at least the market didn't totally collapse in January so he has that going for him. "there's still time of course."

And..of course...gold and silver have staged an epic rally in celebration.
RBS lays off 40,000.

Second richest City in Britain is in Scotland of course.
Sure doesn't look like that energy space is going to be devalued soon.
Couple of Nimitz class Aircraft Carriers about to show up in Scappa Flow readying to be ported in Kalingrad?

Sure don't ever recall the USA having a "Baltic Sea Fleet" B4.
http://www.youtube.com/watch?v=VUOPCsIm2rY
Always loose ends.
Always loose ends.

Fri, 02/21/2014 - 15:49 | Link to Comment HyBrasilian
HyBrasilian's picture

Hendry made a caricature out of himself... THEY turned him from a 'PROFIT' [homonym intended] into the ultimate 'BELL RINGER'...

~~~

Posterized!

 

Fri, 02/21/2014 - 15:47 | Link to Comment Soul Glow
Soul Glow's picture

Hugh has been a great mind during this great recession, and a sound voice of reason, no matter what his trades have been.

Fri, 02/21/2014 - 15:47 | Link to Comment docmac324
docmac324's picture

Ahhh, the POWER of the Dark Side.....

 

Fri, 02/21/2014 - 15:58 | Link to Comment akak
akak's picture

I find your lack of faith in the Fed, er, 'the market' ---- disturbing.

Fri, 02/21/2014 - 15:50 | Link to Comment walküre
walküre's picture

Best contrarian indicator if there ever was one.

Fri, 02/21/2014 - 16:49 | Link to Comment Bokkenrijder
Bokkenrijder's picture

Don't forget Stolper now.

Fri, 02/21/2014 - 15:51 | Link to Comment Cow
Cow's picture

Meanwhile, Jeffrey Sachs is still collecting his paycheck for pontificating and pretending he knows something about risk

Fri, 02/21/2014 - 15:52 | Link to Comment ColoQ
ColoQ's picture

Looks like Mr. Hendry will be going long Zoloft any day now! Annnnnd it's gone!

Fri, 02/21/2014 - 15:53 | Link to Comment fuu
fuu's picture

Should have panicked Hugh.

Fri, 02/21/2014 - 15:54 | Link to Comment akak
akak's picture

Lie down with bulls, rise up fleeced.

Fri, 02/21/2014 - 15:55 | Link to Comment Silverhog
Silverhog's picture

Hey, he wanted to dive back in. 

Fri, 02/21/2014 - 15:56 | Link to Comment wcvarones
wcvarones's picture

What a concidence.  That's exactly the amount that the S&P 500 was down for the same month.  Nice "hedge."

Of course, the market is back to even in February, so Hugh will be as well.  That's worth 2 and 20!

Fri, 02/21/2014 - 15:57 | Link to Comment q99x2
q99x2's picture

Hope Hugh doesn't turn to drink.

Couldn't have expected him to do anything other than what he did. There are no more market signals.

Fri, 02/21/2014 - 16:10 | Link to Comment Freddie
Freddie's picture

Hope Hugh doesn't turn to drink.

LOL!  He is a Scottish.

Hendry is an intellectual Begbie smacking the shit out of the NWO fiat ponzi shills "economists."

The real (Francis) Begbie from Trainspotting (warning - lots of Scottish pub violence and blood)

http://www.youtube.com/watch?v=vc3E7UkIzt4

Sachs getting the shit smacked out of him by Hugh.

http://www.youtube.com/watch?v=3oZtPK6hqLU

Stiglitz also getting kicked around by intellectual "Begbie."

http://www.youtube.com/watch?v=sAAnV-AolTI

Fri, 02/21/2014 - 15:57 | Link to Comment ColoQ
ColoQ's picture

Who the f*%K would invest with this guy in the first place??? 4 year performance from 2010-2013 of 3.06%/year???  Yeah, I'll pay 2 and 20 for a shitty 3%.  LOL....  No wonder this clown hates mirrors!

Fri, 02/21/2014 - 16:02 | Link to Comment ColoQ
ColoQ's picture

A F'n CD was paying 2.12% in 2010 for god sake.  Yeah, I wan't the risk of S&P call options and derivatives for an extra .9%.  Again, WTF.

 

 

Fri, 02/21/2014 - 16:05 | Link to Comment ColoQ
ColoQ's picture

 

 

Fri, 02/21/2014 - 16:05 | Link to Comment ColoQ
ColoQ's picture

 

 

Fri, 02/21/2014 - 17:00 | Link to Comment convex
convex's picture

His fund earned over 30% in 2008 while global stock markets plummetted. The fact that he made positive real returns in the last several years while placing a lot of bearish or "contemptous" trades is very impressive, given the recent secular bull market in the wake of the financial crisis. If you have a basic understanding of the risk-return profile/upside/downside of many of his trades, you would see the value in this fund for hedging, speculation, diversification, and gaining certain exposures. The trades may make very little or lose a small amount regularly but have considerable upside potential, especially given large swings in volatility, currencies, and stock prices. This type of professional management and portfolio structure would have provided a great deal of utility to diversified investors. See antifragile - convex payoff function - options 101.

 

Fri, 02/21/2014 - 18:15 | Link to Comment ColoQ
ColoQ's picture

It's safe to say I have an understanding of his book.  That does not change the fact that he is a self proclaimed macro money manager.  Here is what he states on his website:

 "The investment process combines independent top-down macro analysis, aimed at identifying major changes in global economic cycles and their effect on various asset classes, with bottom-up risk selection."

I am pointing out that he might have been right in 2008, but he missed a fairly "major change" in macro trends in the years that followed.  I have a lot of respect for Hugh for sticking to his guns when it was hard to do, but lets face it wrong is wrong.  If you call yourself a macro money manager and you clearly miss the largest macro trend of the last five years where does that put you? 

Also, you claim his fund has had positive "real returns" over the last few years?  Do you really think that 3.06%/year is a positive real return since 2010? 

Mon, 02/24/2014 - 13:08 | Link to Comment convex
convex's picture

I agree with you about the fund's performance since 2008, he really has missed out on half a decade of macro trends. I just wanted to advocate evaluating the fund's performance over a longer horizon to assess the skill of Hugh and the rest of his management team. Also, we know that with certain trades, they may lose small amounts over a long period of time and then swiftly realize massive gains. Let's wait and see what his CAGR ends up at before counting him out.

As for the real return comment it really depends on what measure of inlation you use. If you use CPI or PPE then absolutely, that annual rate of return would be considered a positive real rate of return. However if you are using shadow stats or some other meaure of inflation, maybe not.

Lastly, I am dissappointed in his recent decision, because the things I talked about in my original reply, the benefits of the fund to a diversified investor, I don't see them given the funds change in its investment strategy from a more contrarian approach to momentum following. It will be interesting to see how this strategy evolves over time, as I do not think he will be rolling over those long index call positions in perpetuity.

 

 

Mon, 02/24/2014 - 13:08 | Link to Comment convex
convex's picture

I agree with you about the fund's performance since 2008, he really has missed out on half a decade of macro trends. I just wanted to advocate evaluating the fund's performance over a longer horizon to assess the skill of Hugh and the rest of his management team. Also, we know that with certain trades, they may lose small amounts over a long period of time and then swiftly realize massive gains. Let's wait and see what his CAGR ends up at before counting him out.

As for the real return comment it really depends on what measure of inlation you use. If you use CPI or PPE then absolutely, that annual rate of return would be considered a positive real rate of return. However if you are using shadow stats or some other meaure of inflation, maybe not.

Lastly, I am dissappointed in his recent decision, because the things I talked about in my original reply, the benefits of the fund to a diversified investor, I don't see them given the funds change in its investment strategy from a more contrarian approach to momentum following. It will be interesting to see how this strategy evolves over time, as I do not think he will be rolling over those long index call positions in perpetuity.

 

 

Fri, 02/21/2014 - 15:58 | Link to Comment philosophers bone
philosophers bone's picture

50% of the portfolio in S&P calls!!!  What a mad man.  Easy to do with other people's money, I guess. 

Fri, 02/21/2014 - 16:07 | Link to Comment ColoQ
ColoQ's picture

That's not even easy to do with other peoples money.  That's portfolio speak for a suicide note. 

Fri, 02/21/2014 - 15:59 | Link to Comment Dollar Bill Hiccup
Dollar Bill Hiccup's picture

He went full retard.

Never go full retard.

Fri, 02/21/2014 - 16:02 | Link to Comment Toolshed
Toolshed's picture

He did the smart thing from the perspective of a money manager. It is much better for a person in his position to lose money along with the vast majority of his peers, and blend in, than to be the only manager not making money for his clients, and stick out like a sore thumb. But, he should know better. I have been fighting the urge to jump on the bandwagon, but know the instant I do, it will all go down the toilet. I did, in fact, move what little 401k funds I have left into pm miner stocks. I fully expect to never get that 401k money back regardless. My employer's 401k is managed by Merrill Lynch, so wave bye bye to your money. I already withdrew all the funds that the plan allowed and put it in real eastate (my home) and gold and silver bars. I look forward to paying off my mortgage in a few years with a single 1oz bar of gold. Gotta have a dream.

Fri, 02/21/2014 - 16:10 | Link to Comment lynnybee
lynnybee's picture

Oh, poor Hugh Hendry!  He is so cute !  Doesn't he know not to fight the Fed?!   

Fri, 02/21/2014 - 17:02 | Link to Comment stormsailor
stormsailor's picture

hafhahahahahahahhaahahhaahhah. thats funny

Fri, 02/21/2014 - 16:16 | Link to Comment Downtoolong
Downtoolong's picture

Ever hear the expression, the market is moving because your in it.

If you don't know what it means, just ask the London Whale.

 

Fri, 02/21/2014 - 16:25 | Link to Comment Save_America1st
Save_America1st's picture

Zigging when he should have stayed zagging...even some of the best let the Evil Empire get into their heads and fuck with their common sense and gut instincts.  At least he's human.  The MUTANTS running the casino are not.

Keep stackin' the phyzz silver while it's still at least 2 bucks per ounce under the average cost of production.  It's still a steal at these fiat values and will be all the way up around 27.50 or so.  I'd let it run to 30 at that point and wait.  TPTB will love hammering it back from 30 with a 5 buck smack-down, and that's when 25 should be the next time to back up the truck before it takes off again and busts 30 in the ass!

Fri, 02/21/2014 - 16:24 | Link to Comment Spungo
Spungo's picture

Was he on PCP when he came up with this allocation scheme? Fuck buying a large cap stock trading at a discount, let's buy the S&P at the all time high! Durr!!!!

Fri, 02/21/2014 - 16:27 | Link to Comment Jack Sheet
Jack Sheet's picture

You can produce any prediction you want by selecting a historical segment of the DJIA and superimposing the last x months onto it. Wasn't there one shown superimposed on 1929 a few weeks ago predictng the exact opposite of Hendry's projection?
Fucking "technical analysis" - more useless than "hen shit on a pump handle " (apologies to "city slickers")

Fri, 02/21/2014 - 16:36 | Link to Comment akak
akak's picture

And don't forget that the supposedly "The Dow" is no such thing, as there is NO single "the" Dow --- it is a constantly redefined metric, with loser stocks continually having been dropped in favor of up-and-coming stocks, making any multi-year chart of "the" Dow utterly meaningless as a measure of TRUE overall long-term stock market performance.

NEVER forget this fact!  Anytime anyone tries trotting out "the" Dow, know that they are either ignorant or a shill spreading propaganda for TPTB.

Fri, 02/21/2014 - 17:44 | Link to Comment Supernova Born
Supernova Born's picture

Read the above to buy and holders and a few heads will explode.

Fri, 02/21/2014 - 18:29 | Link to Comment SKY85hawk
SKY85hawk's picture

I fussed about this several weeks ago, still no response.  It would be interesting if the SP500 chart lined up differently.  Do you think 500 stocks is to much for their computer?

02/02/2014         Strategy choices: http://www.zerohedge.com/news/2014-02-02/paul-singers-vision-coming-riot-point-and-feds-formula-destruction

 

 

I'd feel better if the time frame for the 'current Dow' were shown on the x-axis,  as the Y-axis has 2 ranges.

2nd, how does the DJI#-s back then, relate to the current DJI?  Is there even one stock from the old DJI still in the current DJI?

Lastly, can this analysis be done on the SP-500?  Might be useful since its 'adjustment factor' doesn't bounce around like the dow's factor oscillates.

You, the reader, do know that the total DJI is NOT A REAL NUMBER?

On Jan 17, 2014  it was Total-DJI    Index            Multiplier

                                   2,562.86   16,458.56       6.42

On March 01, 2012 it was

                                    1,714.73    14,054.49      8.19

   
Fri, 02/21/2014 - 17:01 | Link to Comment stormsailor
stormsailor's picture

since he has never had more than 2 months in a row of lose.  maybe we should invest in his fund next month.

Fri, 02/21/2014 - 17:06 | Link to Comment GrinandBearit
GrinandBearit's picture

Hugh's capitulation will be known as the biggest contrary indicator of this generation.

Fri, 02/21/2014 - 17:59 | Link to Comment Robsabi
Robsabi's picture

Do remember that, as Hendry himself has discussed on a number of occasions, he's running a *true* hedge fund - like in the good old days, before the meaning of the name changed to cover anyone with more more money than sense who simply piled his entire AUM into into AAPL, then sat back and took his 2 and 20. As a true hedge fund, Hendry has traditonally invested in assets that are intended to  outperform in the eventuallity that the constant bulltard market hits a big pothole - or a total cliff. But of course, there's no such thing as a free lunch - such assets are bound to underperform in a Fed-induced multi-year market ramp...

I hope that, despite his recent sardonic adoption of a bullish outlook, he's stayed true overall to the real hedge fund course.

Fri, 02/21/2014 - 18:10 | Link to Comment ColoQ
ColoQ's picture

Couldn't agree more with anything you said here.  That's why I was so dissapointed to hear the Hugh threw in the towel.  Hugh's was one of the few opinions I respected in this business. It was a real shame when he decided to follow the crowd.

Fri, 02/21/2014 - 21:13 | Link to Comment Seer
Seer's picture

With all the fervor that he had in his "other" position, it's like Jesus doing a 180 and deciding to proclaim the Devil as God..

I realize that he's dealing with OPM.  He HAS to deliver for/to others.  However, he's not having a lot of success, pretty poor success if you compare to all his bravado.

Thanks for the "good times," Hugh, moving on now...

Fri, 02/21/2014 - 20:00 | Link to Comment Black Warrior W...
Black Warrior Waterdog's picture

Sorry, hobbit.

Fri, 02/21/2014 - 20:12 | Link to Comment Seer
Seer's picture

Any wagers that Hendry ends up as a spot on the sidewalk next to some tall building?

Fri, 02/21/2014 - 20:25 | Link to Comment mobydick
mobydick's picture

Abenomics probably won't fail to restore the fortunes of Japan??????

Sat, 02/22/2014 - 00:53 | Link to Comment Spungo
Spungo's picture

"Hugh's capitulation will be known as the biggest contrary indicator of this generation."

Permanent plateau?

Sat, 02/22/2014 - 03:23 | Link to Comment ebworthen
ebworthen's picture

Reality fighting the rabbit hole fantasies of the Central Banks and the hookah smoking Caterpillar.

Do NOT follow this link or you will be banned from the site!