"We Have Front-Row Seats To An Imminent Market Shock", Hedge Fund Billionaire Warns

Tyler Durden's picture

Having previously noted that "this is the best shorting opportunity since 2007-9," Billionaire hedge fund manager Cripsin Odey warns that (just as Goldman has noted) the global economy is h"eaded for recession and central banks will not be able to able to come to the rescue because they have exhausted the arsenal of policy weapons." No matter what happens, he chides, the market shrugs it off as they are "kind of relying on central banks pulling a rabbit out of a hat." They will not, "Central banks are not all singing and all dancing," and cannot avoid the consequences of what they are doing, concluding, "you and I have got grandstand seats here [to an imminent market shock]," and investors are about to "find out just how illiquid it really is out there."

One of the world's leading hedge fund managers has warned that global economies are headed for recession and central banks will not be able to able to come to the rescue because they have exhausted the arsenal of policy weapons. As The Sydney Morning Herald reports,

Mr Odey is best known for his big macroeconomic calls, including foreseeing the 2008 global credit crisis; piling into insurers in the wake of September 2001 attacks; and picking the recent oil price rout. He famously paid himself £28 million in 2008 after shorting credit crisis casualties, including British lender Bradford & Bingley. Mr Odey's fund returned 54.8 per cent that year.

 

"The market's reaction to all of this is leave it to the professionals, leave it to those great guys, the central bankers, because they saved the day in 2009," he said. "These guys are kind of relying on central banks pulling a rabbit out of a hat."

 

The risk is that this time, monetary policy may be ineffective: "We need the crisis to reformulate policy. Central banks are not all singing and all dancing, they cannot basically avoid the natural consequences of what we are doing."

 

An inadequate supply-side response to the plunge in commodity prices as the resources industry declines to reduce production was in effect stimulating supply into falling demand.

 

"The trouble is today the players, whether they are the miners or the oil companies or the Saudis or anybody else, they are not doing the right things. This is the first time in my career where economics 101 doesn't work at all."

 

But it was also true that the world has not had a major recession for 25 years and thanks to frequent interventions, "there is a sensation we don't have a business cycle". Stocks are enjoying a six-year bull market but he also hinted at liquidity issues bubbling under the surface.

 

"I just think that you and I have got grandstand seats here [to an imminent market shock] and my point is having found myself in the second quarter of last year selling a lot of equities and starting to go short, I found out just how illiquid it all was. You never actually see it until people try and get out of these things."

 

It was unclear to Mr Odey what central banks could do to prevent a crash.

 

"I find it intriguing that we are so dependent on these central banks who are expected to do great things and yet what can they do? They start with interest rates pretty well at zero."

 

He believes the US Federal Reserve will be motivated to begin the tightening cycle.

 

"You're going to be very tempted to raise interest rates simply because you want to normalise," he said. "There is a sense in which these guys are longing to try and stop some of this activity taking place as well as getting the situation back to some kind of normalcy.

 

"My view is hey look, if they do raise interest rates, I don't even need it to happen but I do think that will put a bit of pressure on the sharemarket as well... Everything points to it being a bubble. You can never know the height of a bubble but by the time it gets to here you haven't got much time."

 

Mr Odey's fund in Australia is called Odey International Fund (OIF) and employs the same investment strategy as his flagship global long/short hedge fund, which has a 22-year track record and has returned approximately 14 per cent per annum net of all fees. OIF has returned 22.9 per cent since inception on July 29, 2014.

 

Odey Asset Management is identifying short opportunities amid the fervour of the six-year rally and huge currency fluctuations are factoring in to the fund's positions.

 

"For me, what I find very interesting is given the risk of recession, how is it the West stockmarket can be hitting all-time highs? History tends to be not very generous in this regard. If you get a recession in a low inflation environment it tends to impact the ratings of stocks dramatically."

 

It was akin to "watching the markets take drunken bow after drunken bow".

 

"It's amazing that nobody else is on the same page."

*  *  *

As he previously concluded, 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.

So, where am I placing my money?
 

  • Firstly, I think equity markets will get devastated. Unannounced business cycles ensured Japan’s stock market 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 politicians 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.

*  *  *

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SilverIsKing's picture

Illiquid?  Then it must be time to lube up!

flacon's picture

Ohhh... the markets are going to crash... oooohhh... I've been hearing about this since 2010 and lost a shit ton of money betting with these grandstanders. BUY AAPL - it doesn't matter if it doesn't work, it's the TICKER SYMBOL that counts.

 

And by the way, how many billions of percent were the stock markets up in Weimar Germany, and Zimbabwe? Oh yeah, probablly the next order of magnitgude above a trillion. 

NoDebt's picture

"In a surprise announcement today, the Fed unveiled the continuation of the recently paused QE3 asset purchase program"

Dow rallies 900 points in 2 sessions, 10 year goes to 1.45% and all this doomsaying shit is tossed out like yesterday's fish.

Coming soon.

knukles's picture

Wow!  Guess I can go to the butterfly emoticon show.

Calmyourself's picture

Crispin and his private school pals will be okay right, right..  I am so worried about the Billionaires boys club, attained completely through merit I am sure.  Inheritance is one thing the silver spoon up the ass from birth is another.. Setting us up for another short dumping as qe comes back in unannounced through Belgium, Belgian Congo that is..

MsCreant's picture

But you can't use the "I feel fat" emoticon aparently.

It seems Facebook took it down as an emoticon because people petitioned for it to be removed. 

I am not on Facebook but do find myself amazed at what the "issues" are.

http://www.theverge.com/2015/3/11/8189565/facebook-removes-feeling-fat-e...

Miffed Microbiologist's picture

This is fascinating. So, twenty years ago when I was 210lbs and busting out of a size 18, what was I feeling? I thought I was feeling fat. In fact, I really was mortified by that feeling which was one of the inducements to lose the weight ( besides having asthma so bad I could barely breathe making it even more imperative). I thought my feelings were confirmed by physical fact.

This whole concept is bizarre to me. Are we trying to eliminate shame or judgement? Why not just fix a problem without piling a bunch of useless emotions on it? And, if you choose not to, just pay for 2 airplane seats and fucking quit moaning about it. Common sense today seems anything but common.

Miffed

johngaltfla's picture

"Imminent Market Shock" = 2008 style AssRape for 401K suckers.

kliguy38's picture

does that mean I shouldn't have taken out a second mortgage today and bought the dip

Macchendra's picture

Happy John Titor N-Day!!! :-D

Bananamerican's picture

no, you're fine kliguy.

this markit™ will never drop for I will never buy it...

ATM's picture

It means you were wrong to not also take out a loan on the 1987 Dodge Caravan and use that money too.

Cadavre's picture

From the article:

This is the first time in my career where economics 101 doesn't work at all.

Give the man a fucking cigar!

Since when has economics had anything to do with the White Shoe Russian Mafia running and chairing the board at the Primary "money changers"? Kindergarden Home Ec wouldn't work either, much less the absurd assumption that some chapter in Economics 101 is gonna fix dis shit. In order to repair an economic system, the underlying basis has to be something that almost resembles an economic system. What we are dealing with is wholesale looting of out national treasure, extortion and fraud - only jail time fixes that shit, or, based on de way dis be going, seared on the spit bankster tenders cooked to lip smaking perfect in the embers of a newlly hatched Phoenix.

From the article:

Central banks are not all singing and all dancing

No fucking shit Sherlock. That comes later where the stones ooze green snot and the flies buzz in the dungeon of despair. What'd ya think, Boys and girl? it looks like we got another "master of the obvious" tapping out frenzied "Hail Mary" penance verse like one who has faith that the wolf with thelong nassity sharp fangs `bout to incise their throat will show mercy after "amen" closes a most desperate prayer.

Give the man another fucking cigar, it's pretty hard to sing and dance when every wall street wanna be pimp with enough meat to shunt down the intake chutes of the Soylent Green factory be scrambling down the ladder to the fallout shelter.

 

Uchtdorf's picture

Where is Kyle Bass these days?

Budd aka Sidewinder's picture

Jerking off to Navy Seals shooting shit at his ranch

jerry_theking_lawler's picture

Damn miffed, I knew, deep down, there was some reason I liked you.... my friends call me triple L...its for LLL.

Lover of Large Ladies

But in reality, I just like the chicks that are genuine, funny, and have a good attitude...and most of them are bigger girls.

saints51's picture

You have got to be one of those assholes who spam email accounts with titles like Hey Sexy.

taketheredpill's picture

 

 

Bingo!  Fed raises rates and stocks tank or stocks just tank on their own..don't expect the Fed to just stand there.  they will say something, anything, to try to stop the carnage.  More QE?  Why not.  Stocks will pull out of the dive and bonds and US$ (likely rallying during equity implosion) will crater.

But eventually the Fed will talk and the markets won't care anymore.  Who knows when that will be and who will still be trading at that point.

Escrava Isaura's picture

 

 

"find out just how illiquid it really is out there." 

 

That is the problem of Private money. It will only get worse.

 

http://sovereignmoney.eu/

 

"When you're born you get a ticket to the freak show. When you're born in America, you get a front row seat" George Carlin


 

new game's picture

the players that touch the newly created money play risk free. that money has a corresponding interest rate of near zero. stop right there and go no further. that is the problem.

first touch of money reaps billions, primary dealers-banks and cartel operators.

no return for next tier, savers. ironic as it should be the opposite.

after that ,risk rises, but NOT at risk equel to reward, as is about to play out.

yea, short it, and stay the course. everybody(EXCEPT THE SIDELINERS) is out of options as hedgie obviously states in his regergetation of doomsayer speak. duh. thanks a billion, ha...

max2205's picture

What a douche.

banks just announced 500 billion in buybacks tonight including div increases

 

Where does Tyler find these nincomputes  

stocktivity's picture

It's all Bullshit!!!   QE 6 or 7 will have the Fed printing money out of thin air and buying stocks directly. What liquidity problem?

Squid-puppets a-go-go's picture

this market will never collapse when 'self help' can be declared at whim followed by plunge protection team bids before reopening

TungstenBars's picture

So you're saying I should get a car loan tomorrow and buy stawks?

 

Maybe put down a couple mortgages on the house too?

 

I'd be an idiot not to do that! 

Squid-puppets a-go-go's picture

no because at some point they will pull the rug themselves for the reset.

Geddit? The market isnt allowed to crater the market, only the illuminati choose when

Gambit's picture

You guys are entirely missing the point of the markets. It is design to be a medium of exchange for real assets via boom and bust bubbles.   If they didnt want crashed as you say then in 2007/08 they could have bailed out the banks prior to the carnage amongs other things.   They have created the bubble and now it is time to bust it so they can, once again, purchase real assets pennies on the dollar.  

JLM's picture

Exactly!  They love cheap assets of any kind.  Love is the wrong word, they crave them in their greed.  Its obvious what is going to happen.  Fed can't stop them.  Never have and never will.

SeattleBruce's picture

Yeah but they kind of like controlled explosions as atomic bombs are no fun. We'll see how they do as we're in a multiple bubble environment.

SheepDog-One's picture

You lost a lot of money? Hell I knew it was time to abandon the market ship when the Fed stepped in to support the banks....the only way to win is to not play.

hampsterwheel's picture

The more of something you make the more valuble it gets.... the higher the P/E ratio the more you should buy, the more debt you buy the lower the interest rates you have to pay....

the banks cannot lose - I wish in 2008 rather than waking up and trying to wake other people up, I would have moved to NY and taken a job on Wall Street writing code for HFT, shorting metals and buying the S&P.... I'd be driving a Lambo, screwing the little guy and laughing over my MCcallen 30 neat.... what a sucker I've been --- is it too late??? Anyone hiring on wall street????

 

thinkmoretalkless's picture

Shorting this market is for billionaires not for those with a mortgage. It is amazing how old sayings keep getting validated, like how many baskets you should keep your eggs in. When drunk secret service agents crash into the whitehouse security gate after a night of partying you know we're off the rails. Time to keep your head down .

TBT or not TBT's picture

It's hard on them to be right fucking there and not haul off in disgust at what they are witnessing, and do something salutory for our fallen Republic. Instead they are charged with taking bullets for its murderer.   Thats's driving them to drink.   The dissonnance.   

Xibalba's picture

Algos are gonna run him up before they fulfill his dream...short away! 

Thirst Mutilator's picture

Hugh Hendry used to work for this clown [which is where he learned the fine art of CLOWNsmanship]...

Hitlery_4_Dictator's picture

Any day now...lol sure.  I'll be dissmissing this guys bullshit along with most other zhedge articles on the imminent collapse

nightshiftsucks's picture

What bullshit, oh you mean the bullshit between your ear ?

thinkmoretalkless's picture

You don't hear the one that gets you

zorba THE GREEK's picture

The stock market will be saved at all cost because Central banks can and will print money to prop

them up like Japan has been doing. The same thing goes for the Bond market. But central banks can't print gold and silver

and that is the place to be when this bitch comes tumbling down.

Beam Me Up Scotty's picture

They can print to keep a lid on the price though.  When you have the ability to print infinite amounts of money (or create digital dollars with a few keystrokes) you can control the price of those commodities in terms of $$dollars.  You just own't be able to find gold or silver in physical form at those prices however.

Pareto's picture

and that is the place to be when this bitch comes tumbling down........or ramped back up - whichever the case may be.

dimwitted economist's picture

SOOOO... When does it Happen? i mean Greenspan says we're Fucked too...

SilverIsKing's picture

You trust Greenspam?  He's in on the charade.  They're just drawing in more shorts for the shearing.  How many times to they need to ram people in the ass before people learn not to drop the soap?  Same shit.  If they've proven anything over the past few years it is that they will do whatever they have to do to keep the market up and rates down.  All else is BS. The market will give us a few more down days, fear will be at a max level, and all of a sudden, they'll jawbone something to make people believe they are not raising rates soon and boom, up she goes.