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Hugh Hendry Live 1: "It Felt Like The Sun Only Rose To Humiliate Me"
In the first of three interviews with MoneyWeek's Merryn Somerset Webb, Hugh Hendry, manager of the Eclectica Fund, talks about what it takes to be a good hedge fund manager – and how he learned to stop worrying and love central banks.
Key excerpts (full transcript can be found here)
What makes a successful hedge-fund manager and whether you are, under that definition, a successful manager.
Hendry: I think I've always answered that question by relating back to the ability to conceive of a contentious posture. I think if I was to quote from Fight Club, I think there’s a famous saying "Would you rather..." my children would say ,"Would you rather upset God or have God just ignore you?" There’s a degree to which being a successful macro-manager is upsetting, not only God, but to the rest of the world, if you will. By being out there with the articulation of qualitatively intelligent argument, which just isn't shared by the majority. But which can stand the test of time and come to actually define the future. That is what global macro is all about.
With regard to language the notion of 'bullish' and 'bearish', I think, does an injustice to the complexity of the arguments that are necessary to construct a global macro hedge fund. I think if I had my time again, I would have been saying that we’re actually, perhaps, guilty of the misconstruing of a bull market in equities, for what is actually the ongoing degradation in the soundness of the fiat monetary system. I think that’s what I was trying to say.
You had given in to a bull market that you had refused to accept previously.
The last time I was really angry was late 2010-2011. Where the market, in its wisdom, had yet to configure the changing economic landscape, and it was perceiving that the economy in Europe and elsewhere was recovering.
I thought that was just insane, that we weren’t capturing the kind of deflationary zeitgeist that was approaching.
I have to say when I look back in the last three years it feels as if the sun only rose each day to humiliate me after that point.
...
But the mea culpa, that I think is very necessary in that I found myself unable to forgive the Federal Reserve and the other central banks for, if you will, bailing out Wall Street from the excess of 2008.
I just couldn’t get over it. I luxuriated in the polemics of Marc Faber and James Grant and Nassim Taleb, in our own country, Albert Edwards, et al. I luxuriated as they ranted and it was fine for them to rant. But I am charged with the responsibility of making money and not being some moral guardian and certainly not a moral curmudgeon. I had to get over that. So again, back to my infamous letter of last year.
That was cathartic for me to say “You know what? I get it.” I think if we’re going to try and explain the qualitative arguments behind why we are more receptive to the notion of not only left tails where markets can fall, but the right-hand tail of the expression, where markets can actually continue to rise if not to accelerate.
So I really feel very, very isolated from their view of the world. Arguably, we’re talking about the here and now and the future’s a long time. But in the future, I’m sure our paths can converge once more.
Why do you think that [macro funds] as whole is failing to make money? What’s going on there?
I can reflect on my own difficulties, if you will. What I’ve found is that macro is distinguished, I believe, by superior risk control. It’s almost analogous to a disaster insurance programme. In 2008, all the good macro managers, they made you money. That’s what you pay them for. The world became profoundly unsettling and you cashed in your insurance policy.
Today, I question the relevancy of that disaster insurance. In a world where the central banks seem to have your back, seem to be underwriting risks and global asset prices, do you require that intense scrutiny of risk?
So your basic point here is that if the central banks have your back, there’s no need to have the same kind of risk controls that you used to have.
Hugh: There is less need. Less need. I tell you, I was at a conference with some of the great and the good global macro managers in September in New York and I asked them all the question, “If the S&P is down 12% what do you do? Are you selling more or are you buying?” Guess what? They’re all buying. So the central banks have created a behavioural tic which is becoming self-reinforcing and I believe we saw another manifestation of that behaviour in October.
* * *
But Raul Ilargi Meijer has a different perspective on Hendry's change of tack...
Hendry, I think, is as bearish (or negative) about the – future of – world as he has been for a long time, only he’s decided to see things from his fund manager point of view, and to ride the crest of the waves the central banks have tsunamied towards our shores. He’s chosen to make a buck off of them waves, even as he’s aware of the damage they’ll will do once they hit land. In the exact same way as a surfer who sees a tsunami as merely a set of great waves to ride on. And, no value judgment involved, but that’s not what I see.
He sees the world going to hell in a handbasket (and Hendry recognizes that very much, that’s not why he shifted gears from bear to bull) and his response is to grab as much money and wealth as he can (for his investors … ).
...
Hugh Hendry sees the world in an extremely bearish way, he sees hell, the handbasket, brimstone and far worse. But he wants to profit – in name of his investors (?!) – from the very mechanism that drives the world there: the power central banks and governments have been allotted, and the way they use it to protect the interests of investors, banks, insurance companies and uber rich individuals, all at the expense of booting the 90% who make up the real world and the real economy, ever deeper into the mud.
Seeking to profit from that is a choice. Hendry makes it, and so do many others, even many inside the 90%. Who mistakenly dream they’ll be able to hold on to those profits (they’ll wake up yet, and wish they had before). The whole idea of scraping out what you can before the tsunami hits is not my thing.
* * *
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what does it take?
A monkey with a dart board.
It also helps if you can convince rich idiots that interest rate reset dates have any real effect on maturity dates in your underlying.
Look at the funds that collapsed 6/7 years ago and look at their unadulterated WAM and stand amazed at the simple, beautiful correlation of short real WAM to taking a giant sloppy shit.
Think it's happening now?/
But will the alpha you chase buy you 2 eggs Hendry?
Mr Hendry repeating the ZH comment section, two years after the fact: "guilty of the misconstruing of a bull market in equities, for what is actually the ongoing degradation in the soundness of the fiat monetary system. I think that’s what I was trying to say."
... in the soundness of the fiat money system"...
Bwahahaaahahaha! Good one.
Well, I am greatly disappointed, Hugh. Rolled right over for the dark side and let them rub your belly.
Whatever happened to Death Before Dishonor?
I can understand why it was difficult for a rational fellow like Hugh to go long lunacy.
"Proud men might shout that they would sooner die free than live as slaves, but pride was cheap. When the steel struck the flint, such men were rare as dragon's teeth; elsewise the world would not have been so full of slaves. There has never been a slave who did not choose to be a slave, the dwarf reflected. Their choice may be between bondage and death, but the choice is always there.”
He made his choice.
"ongoing degradation in the soundness of the fiat monetary system."
oxymoron: soundness of the fiat monetary system
The honorable ones saw what was happening - and returned their clients' money.
"You can say that but I can not!"
So Hendry is going to go over to the dark side of the momentum chasers, fraudulently backed by the Fed, in order to make money for his clients, because that's his job as a money manager, and they deserve nothing less. Which is fine, except when you really look at it, this is just greed dressed up as duty.
oxymoronic comes to mind.
" it feels as if the sun only rose each day to humiliate me after that point."
http://en.wikipedia.org/wiki/Egocentrism
Seems this type of thinking is endemic with skimmers. Wonder if all the coke these guys do does this to them? Seriously, you are a meat bag just like the rest of us.
pods
When did he recommend buying DDD? It halved since last december.
There is only one thing which is worse than missing this bull market. It is owning stocks and loosing while the SP is surging.
as in "loosing your bowels" or "losing" money?
;) I guess loosing your bowels ...
I can think of worse, buying yellow and keeping it since the metals bull ended in dec/12. hahahahhaahahhhahahahahaa.... :)
"Looks like meats back on the menu boys." - Orc General.
http://youtu.be/lco9Ki-5qfQ
Listen.
Someone give this guy a bath in his swanky midtown apartment!
If your country wins a war or loses a peace, what do you do? TAKE A HIT!
Oh yeah, this should end well.
Here's an algorithm you can use to beat the hedge fund managers under modern markets.
When the S&P passes up through it's 50day moving average you buy it and sell treasuries.
When the S&P passes down through it's 50day moving average you sell it and buy treasuries.
For the lazy, replace 50 day moving average with 200 day moving average
Listen.
That about covers everyone. Nicely done.
Or... when you see the S&P is red (like, every US morning) buy it. The odds are greatly in your favour that by the end of the day it won't be redz no more.
Nope. Too much like effort. Just set your computer to watch the moving averages. It'll handle the trading for you. It should only kick one off every couple of months.
The rest is Gravy.
I agree with Raul Ilargi Meijer.
The only option Hugh Henry had after realizing his pickle was closing shop or trying to ride the craziness (for his customers - in the end it's OPM.)
The only question remaining is why didn't he close shop.
Listen.
Why can't these guys see it. Japan is the blueprint.
"The only question remaining is why didn't he close shop"
You already know the answer.
Hendry the Calvinist Scotsman, lost to the Luciferian FED / ECB. The darkness is upon us all.
Just BTFD and take the risk free money.
I'm sure I saw that in the bible somewhere...
WWJD?
BTFD.
WWWWD? (William Wallace)
He'd chop the fk'ng head.
If I remember correctly, Jesus grabbed a whip and beat up some bankers.
That is what Jesus would do.
The one I preferred, during the Bush years, was the bumper sticker that said Who Would Jesus Bomb? Applies today too
Years ago when I read the ft sat edition I found Webb's money advice interesting............not that you will take the ft seriously unless you are on the watch for capitalist kite flying.
Still I would not mind getting me leg over that sexy bitch.
Is it even possible at this point for any more "professional" money to pile into the FOMO trade?
Cue the train carrying a zillion Indian dudes . . . . . . .
Listen.
Choo choo!
"... the power central banks and governments have been allotted, and the way they use it to protect the interests of investors, banks, insurance companies and uber rich individuals, all at the expense of booting the 90% who make up the real world and the real economy, ever deeper into the mud."
Agreed, those who run the markets defraud the general public on a daily basis. They manage price through a variety of mechanisms and then lie about the reason that price moved. They tell people that there is a free marke, that public sentiment is always wrong and the professional managers of the market are the only ones capable of being right ... But that is a lie intended to help defraud. It is a crooked casino where the banks get to see the opponent's cards and then choose the cards from the deck that allows them to win every single time they want to win.
It is of course illegal to defraud and steal in this way. But, it is not proescuted.
The least they could do is admit they run a crooked game and that those whose money they manage will benefit and others will have their money stolen.
No, I would rather die destitute than prosper through them.
Wow, so basically two points:
1) There is no market and risk to decreasing indexes have been removed.
2) Hedge Funds have now been calibrated to the FEDs removal of stock price risk.
Now there is a recipe for success!!!
I think I am on record here stating that hendry is a classic British agent- you know the type - happy to be inside the circle , a Glaswegian Turk doing his masters bidding as a trendy counter cultural spook /spoof.
Edinburgh.
CHrist , are you sure ?
I always imagined him as a working class bloke left into one of those tents, a bit like the milkman who became a RAF buccanner pilot in that BBC series from 30 years ago.
You are a funny bastid.
Correct. West Coast. Jumped a free ride on the last bus out of the council estate.
What an absolute wanker.
A HF ace who lived off the Oligarchy rape, pretending he was more clever than the run of the mill rapist.
A financial rapist is a Conquistador whose only mantra is : those fools have no souls; they get no quarter from us!
Its time that Destiny pulls the plug against these false noses of "free market equlibrium" living off the fat of "our money your problem until Hell freezes over!"
Amen.
Hugh says BTFD - bearish
Hugh says BTFD and don't sell if it goes bearish.
But he sounded so confident in his interviews????
Lust, Gluttony, Greed, Sloth, Wrath, Envy, and Pride, 5 out of 7 ain't bad in this world of evil overachievers Hendry. Try, try again...
when i was young, i used to have to look up words like "rehypothecation" or "covexity". now i have to Google every other
acronym. i mean WWJD?
close shop or and close your mouth there is no honour anymore
go with the flow or get crushed by the herd
I was disappointed in his decision, but he wants to play in the game more than he wants to stand in his integrity. Integrity doesn't pay much.
However, if the CB's are floating the tab by debasing the entire currency system, then that means (ultimately) that what is of relatively more value is real property, since it can not be manufactured into existence. (not real estate) productive land, energy, metals, food, some industrial capacities, etc.
Sounds like he took the blue pill to me.
If there is one thing I learned, it's to invest in markets that are manipulated UPWARDS...
"What makes a successful hedge-fund manager"
Umm...how would he know?
Fuck him and his slick backed hair and his dooshy little glasses....smug little prick
That's not hair product, he can't afford shampoo.
On second thought, is this chap an indication that the top is in?
Yeah well ... the billions being printed will ultimately be looking for real assets to own, and in the stampede most will be thrown under the bus.
That makes perfect sense, but there's one factor that I've had to think hard about lately: What if deflationary forces are destroying currency as fast or faster than they are creating it? I'm not saying that I know, because I don't, but it's a question I'd love to get an answer to. Isn't every loan default deflationary, as it represents a performing asset that no longer produces money?
Of course your thoughts are correct. What took you so long?
I don't know either. Paying a loan off wipes out currency, defaulting doesn't. A loan in default can't get rid of the deposit money because that's already been spent. The model I have is of a semiconducter the P/N junction is the counter at the bank. Deposit money is electrons and they inhabit the world on the "outside" of the banks as cash in your pocket or deposits (liabilities). The "mortgage note" is like a "hole" and it circulates in the shadow banking world on the other side of the counter where it gets packaged up. The shadowbanking stuff we used to get a lot of on ZH. A defaulted loan asset can have two outcomes. A genuine "white elephant" or hole in the ground that produces nothing at all (the broken windows fallacy) or an asset that was overvalued and for the loan but some guy up a dirt road gets hold of it and makes something of it.
But ..... what the default does is wipe out the interest "stream" which is leveraged to create the MBS.
Man Hugh has definately lost his MOJO.
exactly! the only thing that makes sense is that the equities market is a proxy for the value of fiat. the fact that the equities market goes up with the value of the dollar this time says the rest of the world has gone to hell and the only safe, liquid market is in the usa. from chinese investors awash in dollars to japanese and euro investors saving capital value to scared money in the other emerging markets and the dollar is where it is at.
if inflation takes hold in the usa the market will go to the moon.