"Equities Will Be Devastated" Crispin Odey Warns, Looming Recession Will Be "Remembered For 100 Years"

Tyler Durden's picture

"I think equity markets will get devastated," warns famed $12bn AUM hedge fund manager Crispin Odey in his latest letter to investors. Having been one of the biggest bulls of this particular central bank artificial-bull cycle, his dramatic bearish tilt (as we discussed what he thinks are the biggest risks underpriced by the market previously), is notable. Finally, Odey fears major economies are entering a recession that will be "remembered in a hundred years," adding that the "bearish opportunity" to short stocks looks as great as it was in 2007-2009.


Odey Asset Management (report for Dec 2014)

The themes I have been outlining since the second quarter of 2014 are now establishing themselves:

A faltering Chinese economy with growth ultimately slowing down to 3%.


A hard landing for those countries plugged into China’s growth - especially Australia, South Africa and Brazil.


A fall in commodity prices bringing with it pain to those heavily exposed. For oil this is the Middle East, Venezuela, Argentina, mid-west USA, Canada, Norway and Scotland.

No one forecast how fast and how far those commodity markets would fall. However, the same people who singly failed to see this coming are the first to say that the benefits of falling prices will outweigh the costs. My problem with such a hopeful outcome is that, in my experience, those that lose out from a fall in their income are quicker to adjust than those that benefit. In that intertemporal space lurks a recession.

For me, the slowdown/recession finds a secondary downturn thanks to the immediate closing down of any discretionary capital expenditure in the affected industr es and countries, something we are only just seeing. This obviously has knockon effects for incomes and employment. At that time the exchange rate is likely to be falling to give some support. In my world this slowdown in the commodity producer’s economy is felt via falling exports back in the beneficiary’s economy, which finds external markets weaken. Again, if I am right on timing, the effect can be great because it is not yet affected by a pickup in spending in the beneficiary’s economy.

As always, that is the theory and markets will show whether it works in practice. In my world, this hit to the world economy is the first experience of a business cycle since 2008. Most investors do not believe we can experi-ence such a downturn. They rely upon Central bankers who they think have solved the problem.

However, let’s also deal with three counters that I currently have to field:

1. ‘How long dare you be wrong?’


2. The opposite. ‘Do you think after a good quarter, this is all in the price?’


3. ‘But isn’t a downturn in the world economy leading to massive counter-measures in terms of liquidity, as en-visaged by Draghi and the ECB, which will push mar-kets and assets higher?’

My answers are as follows:

1. The performance of the fund since I decided that the world would end differently to my previous thinking, which was in March/April 2014, reflects that I have not been especially early in this call. It would have been rather nice to get the fall in oil spot on, but we didn’t.


2. No change in cycle lasts for nine months. This down cycle is likely to be remembered in a hundred years, when we hope it won’t be rated for “How good it looks for its age!”. Sadly this down cycle will cause a great deal of damage, precisely because it will happen despite the efforts of the central banks to thwart it.


3. We need to go back to 2008. We had seen reckless spending and reckless borrowing, fraudulently obtained credit advances and overvalued housing. And yet, de-spite the banks losing a great deal of money and house prices in the USA tanking, we hardly saw a recession in 2009. Why? Because when the Anglo-Saxon central banks lowered interest rates from 5.25% to effectively zero, they put the equivalent of 30% of net income into the hands of the overborrowed. There were other QE measures taken but this was the important one.

Today we get excited about what Draghi is going to with his QE plans for Europe. However, buying government bonds yielding 1.2% does not move the dial for European borrowers. Moreover it is almost impossible with negative short rates of 0.2%, because why would anyone sell a bond to the govern-ment, even if the yield is only 0.4%, to get a –0.2% yield on their cash? It looks like Draghi’s measures will disappoint markets. Faced with a deflationary bust, monetary policy will prove to be but “pushing on a string”.

There will be a strong temptation for individual countries to act independently of each other to soften the downturn. In this regard the story looks like it is only half way through. Russia will necessarily have to introduce exchange controls, and that really quite soon. Australia, where the average wage is over $70,000, while the USA is creating jobs at $28,000, will have to allow the currency to fall further. Japan has shown, under Abe, how it intends to react. ‘Everyman for himself’ puts enormous stress on a world trading system which has watched world trade rise from 12% to 32% of world GNP in little over 20 years.

So, where am I placing my money?

? Firstly, I think equity markets will get devastated. Un-announced business cycles ensured Japan’s stock mar-ket rating fell by two thirds over 20 years.


? Equities are priced for perfection, pushed up by SWF and high yield investors looking for higher yields and better covenants than high yield bonds.


? Commodity-related sectors look unappealing and dangerous.


? International consumer companies look overexposed to EMs.


? Fund management companies look overexposed to the wrong assets, especially EMs.


? Volatility is rising. Not every trade will work.


? Australia is still to see rates down to 0.5% at the short end, 1.5% at the long end, down from 2.5% currently.


? Currency trading is still to make the money. It made money last year as it was where the ‘tyres hit the road’ – equities are just the residual.


? Equity markets will struggle to understand the quarterly translation and transaction effects of these currency moves on corporate profits, starting with Q1 2015.

We have seen though some strange things, with economics 101 turned on its head. We’ve seen that falling prices produce more supply, as the biggest producers see that they can take market share and use the opportunity by reducing average costs through excess production. We’ve seen that in the oil, minerals and iron ore industries. We have also seen in the last couple of years that as bond yields fall, governments are able to issue more debt.

But this time round the problem we have as well is that politics will start to rear its head and we are left to deal with politi-cians who are increasingly critical of the capitalist system’s ability to allocate capital and provide for society.

For me the shorting opportunity looks as great as it was in 07/09, if only because people are still looking at what is hap-pening and believe that each event is an individual, isolated event. Whether it’s the oil price fall or the Swiss franc move, they’re seen as exceptions.

After the 1987 crash, a friend of mine, then a young Director of Sotheby’s, was sent to consult an old Partner who had been at Sotheby’s during the 1930s and was still alive, albeit in a nursing home. My friend asked the question “What was it like in the 30s?” and the man replied “It was like being bitten by a tarantula.” My friend didn’t really understand that, but later on in the conversation the old Partner said “A spasm of activity followed by a death.”

My point is that we used all our monetary firepower to avoid the first downturn in 2007-09, so we are really at a dangerous point to try to counter the effects of a slowing China, falling commodities and EM incomes, and the ultimate First World effects. This is the heart of the message. If economic activ-ity far from picks up, but falters, then there will be a pain-ful round of debt default.

We already have volatility across asset classes and as I say, equities are the residual. There is a precious little earnings growth ex-Japanese exporters and we have now reduced our US cyclical exposure as we expect the commodity-induced recession in the mid-west to effect the resilience of the greater US economy. In Europe, we are half way through the write-off process, having written off half as much as the US. Draghi will disappoint and this may cause the first Euro rally given the fall from €1.25 to €1.15 in a month.

We are in the first stage of this downturn. It is too early to see what will happen – a change of this magnitude means the darkness and mist is very great. We will make some mistakes but with our thinking we won’t make the major mistakes. The problem is where you stand – I am amazed to see so many are fully invested given that equities are already fighting the downtrend. Mid and smallcaps have moved into bear markets and much relies on large caps to keep the whole thing going and they are very exposed to international trade.

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ml8ml8's picture

If we remember it for 100 years it will be called a Depression.

Romney Wordsworth's picture
Romney Wordsworth (not verified) ml8ml8 Jan 27, 2015 5:36 PM

If we remember it for 100 years, some BAD GUY will have made THE TRIBE to suffer an EXODUS, or HOLOCAUST, or some other unspeakable devastation.


So basically I'm thinking a token BEAK will get tossed in jail... Maybe it's already happened... Maybe the story will be that 1.5 x 2,0002 Bernie Mafoffs were made to suffer at the hands of Adolf Von Pharaoh Von Ramuses III


Spielberg's great grandchildren will win Oscar Meyer statuettes for the storytelling.


At least DETROIT won't have changed much... ROBOCOP will still be dispensing JUSTICE.


Beam Me Up Scotty's picture

"But this time round the problem we have as well is that politics will start to rear its head and we are left to deal with politi-cians who are increasingly critical of the capitalist system’s ability to allocate capital and provide for society."

Thats because WE DON'T HAVE A CAPITALIST SYSTEM!!!  Not because a capital system can't allocate capital!!

NoDebt's picture

What's up with all the hyphenated words?  If the Fed actually raises rates what we'll remember in 100 years is that we did 1937 all over again.

FL_Conservative's picture

the "bearish opportunity" to short stocks looks as great as it was in 2007-2009.


From his lips to God's ears.

Four chan's picture

personally i only have about 30 years left, so fuck it.

ajax's picture



@Four chan "personally i only have about 30 years left, so fuck it."

Yeah maybe, but those so-called breasts of yours have the same shelf life as a can of Campbell's "Baked Beans" ie from here to eternity. Plastic is rotting the guts out of us all.

COSMOS's picture


Nothing is better than gold and its getting hard to find, leading to desperate measures.

SMG's picture

The market will crash for sure, but I personally think we're headed for hyperinflation ($500-$5000 for a loaf of bread?), so the nominal  value of the market may still go up, even though the true value of the shares crash.   Shorting may not work here.

They're going to have to come up a new word to decribe what's coming, recession/depression won't cover it.  Maybe the Great Collapse, or the Great Devistation.  God help us.

BraveSirRobin's picture

I would hate to be managing money right now. All the options are hard and dangerous. Of course, some one will make out like a bandit (probably literally), but it probably be either a matter of luck, connections, or raw power.


brockhardman's picture

The only thing that will be around in 100 years from today will be all of those people who trusted the only one that can truly save you.

Its_the_economy_stupid's picture

no one has the balls to short this juggernaut. get out, maybe. short it? never.

Richard Chesler's picture

Seriously now, how many of these hedge fund clowns need to come bearish on zerohedge before the es ramps another hundred points???

Long live President Okafka!


Thanatos's picture

Crisis Looming?

There's an app for that...


ebworthen's picture

The banksters and their complicit FED lackeys hate us working savers for our values and morality.

"In that intertemporal space lurks a recession."  I think he meant depression, but o.k.

TinF0ilHat's picture

Are you some math guy?

mkkby's picture

Wow, this is some fine hedge fund manager.  Where can I send in my money?

Let's see... he says oil and commodities will go down, and China will slow down.  Hmmm, seems that's happened already.  Yes, this is some fine manager making a very bold prediction.


asiafinancenews's picture

"They're going to have to come up a new word to decribe what's coming, recession/depression won't cover it."

Agreed. Perhaps 'inflationary stagnation'? The price of everything you need goes up while the price of everything you own goes down. 

ersatz007's picture

how about "oops, I crapped my pants!" ?

me again's picture
me again (not verified) COSMOS Jan 27, 2015 7:14 PM

Silver is somewhat better than Gold for transactions; except major ones; and there's plenty of boht; once you get over the odd idea you have to have it buried in your back yard.  plenty of bags of used US 90% Silver coins available to put in the back yard; or whatever;

tenpanhandle's picture

The odd idea of burying your silver is fostered by the desire to not get ripped off; making it not so odd after all.

Augustus's picture

Typical urban criminal dummies.  Steal a couple of vehicles to trash out.

Use those to steal some nuggets worth $10,000.

Must have sourced some bad stuff from Colorado.

pgroup's picture

Uh, the insurance company will pay a lot more ransom than the melt value to get them back.

natty light's picture

The justification is off. 

ZerOhead's picture

Since the financial and political elite control how history is recorded they will likely attribute the entire forthcoming apocalypse to morally corrupt HOMEOWNERS and NATIONS who REFUSED to pay the honest and victimized hard-working banksters for the shitloads of crappy unsustainable debt they created...

Escrava Isaura's picture



Crispin Odey: "I think equity markets will get devastated"

Who cares! Nice distraction (propaganda), anyway.


Now Mr. Odey, let me show you the real meaning of “get devastated”:


First: Energy

The data below is barrels of oil per day per rig.

Middle East

2000 Average: 140,144 / 2014 Average: 59,945


2000 Average: 6,465 / 2014 Average: 4,577


2000 Average: 36,148 / 2014 Average: 21,698



Second: Finance

In 2015 AD, humanity condenses into a single couple of superhumans.
While increasing the total debt by $1 provides an at least $0.01 growth in the nominal GDP (immature debt), the system can grow by exponentially increasing the amount of new borrowings. When the growth in the nominal GDP per $1 of new debt becomes zero, refinancing the accumulated debt and interest becomes impossible, and the system implodes.



Third: Panicking

Economic situation could soon become intolerable as the richest countries inequality increase.

Super rich are buying 'secret boltholes' where they can hideout in the event of civil uprising against growing inequality…. Nervous financiers from across the globe have begun purchasing landing strips, homes and land on remote areas…




me again's picture
me again (not verified) Escrava Isaura Jan 27, 2015 7:28 PM

http://commondatastorage.googleapis.com/static.panoramio.com/photos/orig... Good runway. In Northern California. Very isolated by road; long, long, torturus two lane road out to the State hwy 101. And everybody between this runway and the highway is a pot grower;  LEO's don't go there. Cheap forested land. have to be a bit of a pioneer. cold wet winter. but very beautiful. no one will bother you. Everyone is self-sufficient.

Escrava Isaura's picture



Wrong! Can’t be US because Americans cannot live in scarcity

It has to be within a peaceful, pacific culture.

Nations like the US and Brazil are a NO NO. Also, Christianity on both nations are too superficial (cynical attitude of positive thinking, entitle of privileges or special treatment).

And the weather has to be subtropical all year long. Lots of rain.



me again's picture
me again (not verified) Escrava Isaura Jan 27, 2015 8:31 PM

Wrong ? I lived in the woods there and flew in and out in my airplane; but you know more about it than I do ? Of course, you do.

me again's picture
me again (not verified) Pickleton Jan 27, 2015 8:15 PM

Oh; sorry. don't know why. you can look it up yourself. it's called Shelter Cove Airfield; Northern Calif.

macholatte's picture


Been there... drove that road. Absolutely love Humbolt County and regret very much not buying some land up there about 8 years ago.  The Redwood Forest is where God would live if He could handle being in California.

thegr8whorebabylon's picture

RW,  Please watch this and adjust your demons accordingly


every-thing's a rich man's trick

what's with all the hy-phens?





Romney Wordsworth's picture
Romney Wordsworth (not verified) thegr8whorebabylon Jan 28, 2015 7:27 AM

I don't have any demons because I speak the truth.


16 people up there 'junked' my comment. Apparently NONE of them watched the 20th century unfold because what I described is an exact carbon copy replica of what transpired during that 100 year stretch. All I did was to play the same script forward for another 100 years, [& substituted a few fictional name changes].


Now, if one would prefer a 'hypothetical' realm, I can almost assure you that if my initial comment had used Russian or other ME sounding names then, I wouldn't have been replicating any truth, yet nobody would have paid it any bother [especially the 'junkers', who, instead, would have appreciated the lie].

TruthHunter's picture


I see a lot of down votes. Why diss the messenger for the truth?

He's right, history will repeat.


Why shouldn't the future

hold further reactions against the Jews? Israel

and Goldman Sachs impose on friend and foe alike.   

 Jews don't seem to ever admit they might have responsibility

for their own ill treatment. (Jeremiah and Josephus couldn't

 possibly be right; they were collaborators.)  

The Holocaust can only delay the cyclic reactions of history.

Any guilt or horror for the past will be replaced by present


I am not antisemitic. Why should I be, I have Jewish ancestors.



Uchtdorf's picture

But he didn't say anything about gold or Kyle Bass' nickels or anything like that?

quasimodo's picture

Don't kid yourself, blokes such as these have some stashed away. I'm sure he is not in full retard, but these types are hedged to some extent. He has a base he needs to pander to, so he won't be chicken little screaming about full on metals and lead.

Escrava Isaura's picture




But he didn't say anything about gold or nickels... 

me again

I lived in the woods there and flew in and out in my airplane


Ohh boy! Will these two ever get it?


The Coming Anarchy, by Robert Kaplan

The intense savagery of the fighting in such diverse cultural settings as Liberia, Bosnia, the Caucasus, and Sri Lanka--to say nothing of what obtains in American inner cities—indicates something very troubling that those of us inside the stretch limo, concerned with issues like middle-class entitlements and the future of interactive cable television, lack the stomach to contemplate.



Sudden Debt's picture

Long time average memory has dropped to 2,9 seconds... even goldfish have outpaced the average population.

So maybe it will be written in the last paper book but nobody will bother reading it.

I wonder how many young kids at age 21 and lower read zerohedge for example...

lordylord's picture

"I wonder how many young kids at age 21 and lower read zerohedge for example..."

I wonder how many kids are reading.

bulldung's picture

Couple of years ago I advised a young finance student to try to read and understand ZH. He did and at the end of his undergrad years he was asked to stay on for grad school, full ride. I knew him when he was in high school , bright kid but no too bright. The level of understanding of real markets he acquired from reading ZH set him apart from those who limit their reading to the classroom material. You all contributed to his and my education, thanks.Bulldung

fuu's picture

That will be 2 and 20 please.

walküre's picture

If we were successful then this scholar either graduated to be the baddest ass on WS or he quit the industry and started planting turnips. Once your eyes are open, there really is no middle ground.

Redneck Hippy's picture

I don't learn that much from ZH but it provides a needed boost to my paranoia quotient.  Without ZH, I am not nearly cynical enough to survive.

aardvarkk's picture

Well yeah, reading ZH can teach you things you never knew before.  But I come here to get the crap scared out of me about what's going to happen next.  It's kind of like going to a horror flick, with the minor exception that one of these days the plots on ZH are actually going to happen.

HardAssets's picture

Many of us come to ZH because the percentage of clueless & apathetic dumbazzes is much lower here than what we usually find. (Mention 'QE' to most people and observe the blank look on their faces.) ZH is a place where we can argue with others who at least recognize the terminology.

90's Child's picture

I've been reading zerohedge before I was 21.

Found the website by asking my buddy bout a good reliable website that covered the stock market ect....

ZH has opened my eyes to a lot of things.

curbyourrisk's picture

Is there an APP for Zerohedge?