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Is Hugh Hendry A Greater Fool?
Submitted by Dominique Dassault via Global Slant.com blog,
Headline:
Hendry’s Convoluted Doctrine Boils Down To…If You Can’t Beat ‘Em…Join” ‘Em…NOT!
I do not personally know, high profile hedge fund manger, Hugh Hendry but his recent investor letter is both fascinating and troubling. His letter examines the contemporary investment conundrum confronted by all long/short money mangers. Take a gander thanks to the folks at Zero Hedge:
http://www.zerohedge.com/news/2014-12-31/hugh-hendry-embraces-central-planning-matrix-i-am-taking-blue-pills-now
Hendry, generally, believes that global central banks’ money printing policies are doomed to fail and the worldwide economy will pay a steep price in the future. AGREED. He also suggests that the timing of the grand, negative economic impact is impossible to precisely predict. AGREED. Therefore, in the meantime, as long as central banks keep printing money and suppressing interest rates [the strategy that Hendry assigns for his gloomy long term economic outlook] he is long the equity markets- DISAGREE BIG TIME – based on, in my opinion, Hendry’s core belief = The Theory of “Greater Fools”. This is a wildly dangerous [yet nothing new], and controversial, market belief…and, therefore, worth examining.
What is the Theory of “Greater Fools”?
The current premise is that global equities markets will rise regardless of economic fundamentals. Money must flow into equities [perceived as the only asset class capable of producing “acceptable” returns] because the alternatives offer virtually no return…with interest rates pinned near zero in most western economies. Just buy any equity [akin to dart throwing] and a “greater fool than you” will buy after your purchase, at a higher price, ad infinitum…thus ever increasing the asset’s value This is such an obviously flawed argument on so many levels…albeit, like almost any strategy, is surprisingly effective from time to time. Still…it is, ultimately, a long term losing strategy because nothing moves up forever [whether it be a balloon or equity prices]…especially when wholly relying on the “fools” behind you.
Complicating matters further is that this strategy is being employed, contrary to popular belief and a centrally banked driven six year suppression of volatility, toward the riskiest asset class [aka equities] at all time price peaks. Investors have shifted to a “risk on” profile…as the global central bankers [the new breed of investment advisors] desire. Investors [aka “The Herd”] are following the directive and “doing what they are told to do”.
And somewhat understandably so as fixed income returns of close to zero just do not “cut it” for most investors as they seek any decent return on their money [despite the historic risks associated with equities]. But equities are not a true substitute for bonds. Never have been and never will be. The historic risks of owning equities tower over the risks typically experienced by owning high quality fixed income. It’s like replacing your morning glass of orange juice with a tall glass of scotch and expecting the same biological effect. Still, it might feel good initially but later in the day you are sure to regret it.
Amazingly, and paradoxically, this riskiest of investments [equities] has, recently, not displayed any quantitative elements of risk…further raising these already dangerous stakes. The “happy potion” [applied by global central bankers] poured over global equities has virtually extinguished most investors’ mere thought of “perceived risk”.
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Consider the Following Price Data of the Past 31 Trading Months:
1. The S&P 500 has advanced for 25/31 months.
2. The largest peak/trough capital draw-down is 9.8% while total returns = 56.05%.
3. Sharpe Ratio of S&P 500: Measure of Risk Adjusted Returns > 2.0.
These are historically staggering statistics…especially for the riskiest of asset classes. The “topper” is that all of this data “stands on the shoulders” of a 96.51% gain in the immediately prior 3+ years. And, of course, the gains are primarily a function of central bankers flooding the global economy with freshly printed money [aka “liquidity”].
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Back to Mr. Hendry and his cleverly titled investor letter inversely referencing Theo’s [“The Matrix” protagonist portrayed by Keanu Reeves] preference to embrace the pain [the red pill] of reality/truth rather than to continue to live in a veiled world of fantasy/lies [the blue pill].
And how does Hendry rationalize his intake of the blue pill? I cut and paste from Hendry’s letter: So I have come to embrace the French philosopher Baudrillard’s insight. “Truth is what we should rid ourselves of as fast as possible and pass it on to somebody else,” he wrote. “As with illness, it’s the only way to be cured of it. He who hangs on to truth has lost.”
I am not certain is if this is more demoralizing or more defeatist. At the very least this relic-ed quote is surely shaking Ayn Rand’s grave site. Anyway…think about it. Is Baudrillard correct…or not? Do you really want to know the truth…or not? Can you handle the truth…or not? And then…what is the truth?
Do you prefer Theo’s red pill or Hendry’s blue pill? Most people, I believe, prefer a third option. A green pill that earns them money irrespective of market dogma. Sadly, that pill does not currently exist. The only choice is red or blue.
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So is Hendry’s current hypothesis the new paradigm to investment success in the world of long/short money management? That the truth does not matter…that following fools is really the best investment strategy…that the best solution to cure the debt laden balance sheets of most western economies is to have their own central banks simply print money to buy-back, and perhaps eventually retire/forgive, their own debt?
How absurd has all of this become that, even after six years of a stabilizing/moderately improving U.S. economy, bad news is still perceived as good news because it perpetuates the massively ineffective money printing tactics of global central bankers?
Or, conversely, is this the “invisible hand” of the market tempting Hugh Hendry with the forbidden fruit of short term profits after entirely harvesting/removing Hendry’s risk considerations over the past six years? And, no doubt, he has bitten deeply into this apple for all of us to see.
That somebody as shrewd and intelligent as Hendry has finally capitulated [after years of skepticism] to the money printing side of the investment equation speaks loudly to the pressures of long/short money management in this unadulterated bull run.
Because, to this point, being short/hedged/risk averse has been nothing “short” [no pun intended] of sheer agony and pain. The only thing worse than that pain is shedding your beliefs just before your hypothesis actually “plays out”…and you miss the downside “price action” you’ve patiently sought for years. That is the risk to Hendry’s strategy of which I’m almost certain he’d admit to.
Finally, I must say, it is difficult not to admire Hendry’s courage to publicly state his provocative strategy. He definitely has some “sack” and has surely selected the right business for himself but, in this case, I reluctantly do not wish him good luck.
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Yes
No
I don't know about Hugh Hendry, but BitCoin buyers are sure looking like greater fools:
Last trade: $177, and falling...
http://bitcoincharts.com/markets/currency/USD.html
When Hendry appears on camera he reminds me of a slobbering drunk sobering up on a pot of coffee and wheeled out to spout the casino's bullshit......they stepped on him like a bug three years ago and ground him into submission
Mr. Hendry appears to have a physical issue common to many people. He is very well spoken.
Mr. Hendry can only do what his clients want him to do. He warns them pretty often.
your paycheck depends on........
I'm very surprised ZeroHedge hasn't posted about the BitCoin collapse ??
I am too.
Prices are real...hence "they fall.". We appear to have a meme problem. " A disturbance in the Force" as it were....
it sure has been quiet without that dooshy troll talking in the 3rd person incessantly about Satoshi.
Miss him? Me neither.
Did Tyler go long Bitcoin??
I agree, I wanted to see if Fonestar would show up.
btfd?
*slobber*
Hendry went into bitcoin as it approached $1000. "Could go to $1 million" he said.
fonestar said he was still buying even after it had fallen from 1,100$ to 800$ and he said he was buying hand over fist even at that price because it was a healthy dip. He repeated the same thing at 600, 500, 350, etc. Now he is gone. LOL I know a lot of us took some hits on silver in last 20 months but the bitcoin bubble was OBVIOUS and it was sad to see people throwing their money at it.
Yes, dollar cost averaging is indeed complete bull...
There may be some credence as Japan, their state pension and the Israelis were buying into the stock market so if all central banks start doing the same in the name of le stabilitee...then the stock market may keep going north as everything else in the free world goes south.
Actually everything will start going north except for the currency that the asset is priced in. That's the rub.
The printied from the ethereal mist currency will flow into assets of all types, not eually or at the same time but into all of them eventually. And eventually the currency will be deemed worthless because it costs nothing to produce and everyone will have lots of it, but it won't buy anything.
Thank god all that fiat found its way to the market, otherwise it would be in everyones purse/wallet and we'd be collectivly fucked. Hmmm, wonder what will happen when the market sells.
Theo? Really?
This is a trick question....
"...inversely referencing Theo’s [“The Matrix” protagonist portrayed by Keanu Reeves] preference..."
Theo??
This is a maybe. Will markets remain manipulated? Probably. With that said, gold and silver are having quite a day!
The Greater Ponzi Scammer?
Trick question?
I would recommend he panic.
....Or else he's lining up suckers to dump his shit onto......
Look for a hand up Hendry's back he's been muppeted.
"His letter examines the contemporary investment conundrum confronted by all long/short money mangers."
A fine time to learn money actually comes from a manger
Waow ZH, your posters, whom you choose, now burn the icons of your past postings.
Iconoclasts are intolerance personnified, as history has proven.
Our fathers were our models for God. If our fathers bailed, what does that tell you about God?
the ultimate "bailer" !
Hendry has sucked at investing since the downturn but it is hard to blame his strategies, it's just that the Fed can defy logic, if only for a 7 year business cycle.
Poster Boy. His name Was Hugh Hendry.
His name Was Hugh Hendry.
Who Hendry?
30 year auction was a fail
http://www.marketwatch.com/story/30-year-treasury-auction-sees-weak-dema...
PRICELESS!
Rotterdam Mayor tells unhappy Muslims to get out
The Moroccan-born mayor of Rotterdam shocked a live television audience this week by telling Muslims who have a problem with Western culture to “pack their bags” and “fuck off.” The Muslim Labour politician Ahmed Aboutaleb made the remarks during an interview with a Dutch news program about last week's deadly attacks on French satirical magazine Charlie Hebdo and is known for his tough stance on Muslim integration in Europe, according to the U.K.’s Daily Mirror.
Spellcheck still does not detect the "manger" typo. Very sloppy, ZH...twice in the 1st paragraph...lol
Where the @#!? is fonestar ?
http://jcffl.com/images/dpool/godfather.jpg
Flipping Burgers!
His mother took away his interweb privileges after he lost the farm mining bitcoins. Dumb luck, that.
Looking for Beeks...
I always liked Hendry. Is he a greater fool? That's a great question to ask. We must wait and see if he got in too late, and was the greater fool of the bunch. On the surface, it looks like he could just be the greater fool! Time will tell.
I saw Hendry's "red-blue-pill" article the other day, and it made me think "The bear market will begin when the last bear has thrown in the towel." I can't remember who said that, or where I first saw it, but it has a certain truthiness to it, don't you think?
I believe Hendry just might have been that last bear.
That is absolutely how all good bull runs finally come to an end........gotta love tulipmania
What do you think?
"Doing a Hendry": Switching sides to the losing side at the worst possible moment?
He is not an individual. He answers to his investors. So while I feel that my conscience will not allow me to participate and thereby support the rigged criminal enterprise that people call "the markets" again, he can't afford to indulge his conscience (Or his senses, intelligence, ethos, or what-have-you). He might be thinking that he is being clever to be aware of their tactics, but he will age and wither with stress before his time the more he swallows their lies.
The banksters, their minions and their political whores have beguiled and blackmailed the world to believe in this new normal: That the wholesale theft of public wealth, enslavement through debt, the everyday frauds and ponzis that exemplifies the corporatism of this age is good for the world. It fucking sickens me that everything good about the simple honesty of trade, the pleasure of a good deal, the trust in having a store of value/good medium of exchange for all the hard work for my future and that of my family have all been turned into a stinking, gagging pile of shit by these fuckers and their puppet masters.
I don't have any ill feelings towards Hendry at all, but I think he may be harvesting the rotten fruits of his investments by trusting in his own cleverness for discoverting that even rigged systems have their own twisted logic. That's fine until the can cannot be kicked any further into the future, until the insane bastards behind their facade of respectability start their tantrums. It may come a lot sooner than he thinks.
+1000. i have the same quandry as Hendry, but I'm still taking the red pill. similar to you, what disgusts me most is that the legitimate process of evaluating business and investment opportunities has turned into an orgy of greed and ignorance. i am completely disgusted.
I don't have the Hendry quandry at my foundry...
ok, "quandary". :) i'll take a spelling problem any day over this financial insanity.
One does not simply take the blue pill. Nor give their money to someone who admittedly has been trippin on the red pill long enough to know the repercussions of the bluepill.
Definately a fucking trap.
It is an awful trap. The only way to win is not to play. But I'm already in the trap. Once you are in, the worst possible option is to capitulate, because as soon as you do capitulate, you know what happens next. I'd rather go broke than go insane.
Hendry capitulated and went long. If he isn't able to sell before the collapse, I do believe he will lose his mind!
Hedge Fund Managers don't personally go broke. They just disappear with their client's cash or get suicided. His f'king problem not mine. lol.
We are getting closer to a good cliffhanger when despite all their knowledge / experienece the hedgies are left with nothing else other than to just continue to BTFD......still alot more converts to go though.
Mrs. Hendry and her lawyers must really know some shit.
Never assume someone isn't a raging homosexual.
Baudrillard's work is about the distortions of history by the way we talk about it. Thus, he using word Truth in a deliberately twisted way. He is refering to the Truth you find in the MSM, to use ZH vernacular. He is also known for making the most bombastic claims possible, based on tortured logic of semiotics.
With his fabulous interviews a few years ago, Hugh obviously pissed some important people off, and since he wanted to play in the big game, they told him to "shut your F*ing mouth".
He is so well read and intelligent, it is possible he's saying the same thing he said before, but in a kind of code that goes over the heads of his 'handlers' . Clearly the Truth quote above is total nonsense when taken literally. And yet, everything we get from the MSM and the government stats, is exactly that total nonsense.
The flip side is that, like most of us, he is astonished at how brazenly the central bankers have simply taken over everything. Markets, media, government policy etc. etc. And they have at least succeeded in pushing huge amounts of capital into the equity markets. They have failed to restart the economy, but when your job is making money for people and you find it scattered all over the ground ... pick it up.
Hugh will look like a genius if he gets out in time. Otherwise he'll join a long line of chumps.
hendry may be right. maybe the market reflects the true value of the dollar, forex notwithstanding. maybe the sp500 has become the inflation/devalued dollar trade as the only place for a useless dollar to hide is in usa equities and bonds. exported inflation is coming home to roost in the oddest places. think about it, rolls royces and the market are screaming.
That reminded me of a story I read years ago about the most expensive cars in the world selling like hotcakes in the late 1920's (Dusenbergs, Hispano Suizas, Mercs and Rolls). That decade was rather infamous as I recall.....
the shoeshine boys were picking stocks then. it was more like the .com bubble.
only the big boys are in this time. they may keep this going for a lot longer than your short will stay solvent.
We have discovered the perpetual money machine! The future is bright, I may need a new pair of shades!!!
Although the "red pill / blue pill" letter came out recently, Hendry went full retard bull quite a while ago:
http://www.zerohedge.com/news/2013-11-22/hugh-hendry-capitulates-cant-lo...
That's 14 months ago. So this article is not fully covering the extent of Hendry's decision. In December 2013 he talked about seeing the market go in to a hot spell, and that he reluctantly was following it. But always with an eye towards crisis management. And from the perspective of Eclectica's 2014 returns he's made a wise choice. At the time of his 2013 writings, Dow was at 16577 (17386 now, or an increase of 4.9%), S&P was at 1848 (2005 now, or an increase of 8.5%). Who know's how Eclectica is covered for equity downturn at the moment, but he made reasonable money last year. The recent article continued his hand wringing over following central bankers vs. following logic, and I don't anywhere remember him talking about Greater Fool Theory. In fact, he bemoans the fact that truth doesn't seem to hold out now but that it inevitably will at some point in time (the red pill will win out, but not until a lot of blue pill time has been clocked). That's actually the opposite of greater fool theory, where there's always another greater fool willing to buy so markets will always go up.
Hendry has said many times that Eclectica is more of an alpha crisis management franchise. If you believe that his current actions are all in equities, damn the torpedoes, then please provide some evidence for us so we can take the same or opposite positions. I'm not a client of Eclectica, but I am very interested in what their mix of hedges/equities looks like.
Getting "raked over the coals", is never any fun...Let's hope, will escape with a better understanding.
come back! come back!...USE THE RED PILL, Hugh!
Two things that are wrong with this article.
First, Hendry has not "finally capitulated", as you put it. Hendry "capitulated" well over a year ago, in November of 2013. Look it up. If you're just discovering his capitulation now, your powers of observation are not such that your market observations should be given any credence.
Second, of course a pun was intended. You can't put a word in quotes, demonstrating that you've specifically turned your mind to the implications of using that word, and then claim that you're not intending the implications/meanings that you've just established you are. A minor point, but again, it goes to the assessment of the overall quality of your writings.
www.thereformedbroker.com/ 2013/ 11/ 23/ hugh-hendry-throws-in-the-bearish-towel/
It's Neo, you idiot