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Hugh Hendry: "Today We Would Advise You That You Don't Panic!"
It was almost exactly two years ago when Hugh Hendry, one of the most notorious market skeptics and the person who in 2010 uttered the infamous line "I suggest that you panic", threw in the towel when he turned bullish admitting he "can't look at himself in the mirror." Since then his results had been mixed, with a 9.5% return in 2014, and a great start to 2015 which subsequently fizzled in the late summer to just +2.9% as of mid-October. Of course, for someone who has to manage other people's money under central planning, we do sympathize - after all he has to do whatever he must to generate profits even if the market stopped discounting the future and merely reacting to central bank liquidity long ago.
In his latest letter, he valiantly trudges on down the path of bullish abandon and tries to convince if not so much others as himself why continuing his desertion of the bearish camp he did two years ago is the right thing to do, and how in the aftermath of the VIX explosion in August, he "learned to stop worrying and love the bomb."
Key highlights:
... it is ironic that we are perhaps best known for advising “that you panic”. However, if you are anxious at the wrong time it can prove very painful. Today, we would advise that you don’t panic!
... by withdrawing the “Greenspan put” and using their asset
purchase schemes to eviscerate any notion of value, the authorities have
paradoxically created a safer yet more paranoid market.
... first it was Europe, then the high yield credit space with the vulnerabilities of the shale oil issuers, and then it was back to Greece and then the mother of them all, China, with its falling property and stock prices seemingly knocking economic growth and making a sizeable devaluation inevitable. And yet nada… the weeping prophets have failed to force a crisis after one hell of a go.
... perhaps we are being premature and the cards are about to fall. Or perhaps there simply are no dead bodies in the system and the global economy has proven itself much more resilient to shocks. We certainly believe that if we had been forewarned two years ago that the dollar would rise versus selected EM currencies by 50% and that important commodities such as oil and iron ore would fall by 50% we would never have been able to predict just how orderly things have turned out at both the company and sovereign level. The turmoil it seems has remained contained within financial markets in a very curious way.
... perhaps it’s time to stop worrying and love the bomb?
Actually at last check, practically all the "bears" predicted exactly what happened: trapped by their own policies, central banks would have no choice than to unleash another onslaught of easing. This is precisely what happened when first the ECB previewed its QE2, then the PBOC cut rates, then Sweden boosted QE, then the BOJ said it would "not hesitate" to act (and would have done so had other central banks not pushed the Yen lower thanks to its carry trade status).
The real question, Hugh, is how much time did the latest doubling down by the world's central banks buy? We should know the answer in 2-4 months.
In the meantime, here is Hugh Hendry explaining...
How I Learned to Stop Worrying and Love the Bomb…
The prevailing mantra in many of today’s investment commentaries reminds me of the satirical plot to the 1964 Stanley Kubrick movie Dr. Strangelove, in which a deranged United States Air Force general orders a first strike nuclear attack on the Soviet Union, convinced that the Soviets have been adding fluoride to the United States' water supplies to pollute the "precious bodily fluids" of Americans.
Today’s grumpy bears likewise allege that our central banks have been adding funny stuff to the world’s money supply via QE and have polluted the sanctity of the market pricing mechanism. As a result we have (too) high asset prices despite low growth and no inflation. In this pessimistic interpretation of the global economy the biggest complaint is the incapacity of central banks to raise interest rates; they have now been kept unchanged in the US for longer than during the Great Depression.
If only those dastardly public officials had not averted a 1930s style policy of mutually assured destruction, when the world’s monetary authorities stuck rigidly to the mantra of “hard-money” to the profound detriment of the real economy! Then, so they reason, we could
have had the cathartic effects of a depression and by now, seven years later, a recovery would be in full swing, signs of inflation would be emerging and we could start raising interest rates…we would be saved! Strange days indeed…and now, like the mad Brigadier
General Ripper, they pin their hopes on the first strike attack policy of creative destruction via unnecessary rate hikes, deluding themselves that such a disastrous course could possibly promote innovation, growth and prosperity.
Never mind that such a policy is most unlikely. To us, this is no way to build anything spectacular. An appropriate analogy perhaps is to compare the economy to the Amazonian rainforest - more complicated than we can possibly imagine. To us, the notion of not intervening, or worse the policy of pursuing tight monetary policy to ignite creative destruction is no way to protect and encourage a truly diverse ecosystem. Instead, we favour the modern orthodoxy whereby policy makers protect the system with their fire breaks allowing the disrupters like Uber and the explosion of free services ranging from Google Search to Skype to Wikipedia et al. to thrive and Forcibly redirect capital and labour elsewhere within the economy. Given enough time and a generous prescription of QE, and shorn of the tail risk of MAD policies, the global economy will eventually recover most of the diversity, durability and growth it once had.
But as it stands right now, macroeconomic presentations seem to have been lifted straight from the pages of religious pamphlets and science fiction novels which overwhelmingly present a future that is mainly worse than the present; a similar mood was evident in the first Jack Schwager Market Wizards book published, not surprisingly, after the calamity of the October 1987 crash. The best minds back then, like today, were convinced that our future was very bleak. We can only conclude that capital markets seem to hoard innately pessimistic desires and that therein lies the opportunity for risk takers like us.
Such anxiety has very much been to the fore again this year, something we found reassuring during the particularly tough months like August when the VIX spiked above 50 and again last month when we were subject to a vicious countertrend re-pricing of the year’s winners and losers. This angst is perhaps the true disease of the 21st century. Cancer and diabetes will most likely be cured in time (preferably by the European drug stocks that we own in our portfolio) but anxiety seems more deeply rooted in the human psyche. In markets, of course, it can be useful, especially if you become anxious before others; we have some good form here. Indeed, it is ironic that we are perhaps best known for advising “that you panic”. However, if you are anxious at the wrong time it can prove very painful. Today, we would advise that you don’t panic!
For markets do not crash when we are collectively so worried; it is like Hyman Minsky’s adage that stability destabilises except that today the reverse is more apt. In our minds it is as though quantitative easing and the zero lower bound of policy rates have replaced the capital markets’ airbag with a dagger protruding from the steering column. Market participants are hugely uncomfortable with today’s elevated prices and the lack of an obvious orthodox policy response should the global economy weaken further. Unsurprisingly there is little appetite to drive fast and the brakes are applied at the merest hint of danger. In short, by withdrawing the “Greenspan put” and using their asset purchase schemes to eviscerate any notion of value, the authorities have paradoxically created a safer yet more paranoid market.
The market’s fear of crashing has seen it thrash around looking for the merest hint of danger. First it was Europe, then the high yield credit space with the vulnerabilities of the shale oil issuers, and then it was back to Greece and then the mother of them all, China, with its falling property and stock prices seemingly knocking economic growth and making a sizeable devaluation inevitable. And yet nada… the weeping prophets have failed to force a crisis after one hell of a go. There have been no observable widespread bankruptcies in China, the shale oil sector is still pumping and despite the huge EM devaluation we haven’t exposed large fragile dollar debts which can’t be repaid or rolled over.
Perhaps we are being premature and the cards are about to fall. Or perhaps there simply are no dead bodies in the system and the global economy has proven itself much more resilient to shocks. We certainly believe that if we had been forewarned two years ago that the dollar would rise versus selected EM currencies by 50% and that important commodities such as oil and iron ore would fall by 50% we would never have been able to predict just how orderly things have turned out at both the company and sovereign level. The turmoil it seems has remained contained within financial markets in a very curious way. Like we said earlier, perhaps it’s time to stop worrying and love the bomb?
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Oh no! Don't panic! Now Boris is very worry!
I suggest a good Vodka and a cigar. That will fix your worries right up.
Boom cycles last about 6.6 years. 6.8 today. You want to play? Well go ahead and have fun.
Hugh Hendry has finally gone full retard.
Hugh is right and totally wrong at the same time...
As GW Bush said - “I’ve abandoned free market principles to save the free market system”
By ending the "markets" (ie, allowing price discovery between willing seller and buyer...not HFT spoofs or digital fiat from heaven) it is quite safe to "invest"...it's just that the entire enterprise is doomed to fail due to the very fact it isn't allowed to periodically stumble or price in possible failure!?!
Giving up FREE markets for SAFE markets?
I will pass on supporting, loving, or participating.
Big boy musical chairs here and when the music's over, turn out the lights.
Not just cigar, but real cigar from Havanna. Soon Amerikanski is also smoke cuban.
I have, they suck. Prefer a Nicaraguan or a "la flor dominicana"
Nicaraguan is not proper roll leave.
isn't that what the rapists says just before...you know. Assets prices go stratosheric....and everything is great as income fall. We trully live in the end of times.
"stocks have now reached a permanently high plateau"
Well thank you Mr Hugh Irving Fischer Hendry!
- John Maynard Keynes in 1927
Time is relative concept. JMK is really mean from 1927 to part way in 1928.
You are say "The Rapist" or "Therapist"? Never mind, is same thing.
Analyst/Therapist or Analrapist for short.
--Dr. Tobias Fünke.
Hendry has been to smart by half and remains so
In other words, Hendry is counseling us to dismiss risk! That ultimately only exacerbates it!
That just spells B-U-B-B-L-E to me!
Zman at the Zblog notes, as others have, "Read Zero Hedge and you come away thinking the world is about to explode any minute. Every day they have a post title something like “Five Charts Predicting Armageddon.” That’s been a feature every day since it started in 2009 and the world has not exploded. More important, being wrong for six years has not discouraged them. In fact, they are more certain than ever, operating under the theory that they are due, I guess."
Maybe you are impatient. Armageddon is not make overnight, is take year or decade. You are watch for wrong thing. Think not of destination, but direction.
kinda gotta start to believe this about ZH,but i do know it's gonna happen,just maybe not in my lifetime
i will also admit,i am guilty of the sin of being impatience
Think of the money they've made though...clickity click click,
The economy goes in cycles. And Fed meddling ony amplifies the boom and bust. This cycle is getting long in the tooth. Six years since 2009. If you think "this time it's different" you'll join all the others that were proven wrong each and every time.
The world is going to explode, and the Cubs will win the World Series ... eventually.
You gotta love Hugh for his character though.
Be Calm. Take Selfie.
http://twitter.com/borisalatovkrap
Just signed up for the Boris news letter. Don't let me down or I won't heart your tweets.
What is with pansy heart shape!? Anyway!? Boris is wish return of patriot star, symbol of statist agenda on back of proletariat working class. Heart is make feel Boris awkward when is give to people because is not like manly.
Yeah right. Fascism is such a great economic model. Fuck off.
You just gotta give it a chance man.
And bring a towel?
So in other words, hold your positions so we have time to liquidate ours before the market crashes. Got it!
What a Keynesian douche. Are there any real capitalists left in the world or have they all become central bank dependent dick suckers?
Self-answering question.
Did they call this guy Hugh Jazz in highschool?
I'd lay money on it.
Yes, don't worry because central banks won't let the markets decline. Nothing matters but that (for now). Policy keeps economies weak, causing bad news, but that is good news because it means more money printing. Can't lose. Everyone with assets gets rich and the poor get poorer.
Great way to manage an economy.
Yes, but then again we know what the outcome of a "let the majority eat cake" monetary experiment is.
This time will be no different.
As predicted many months ago .. Fed will raise rates 1/4%, and then just pummel the banks with liquidity. If S+P goes up at 15% / year who cares if one is paying another 1% on the margin money?
The Fed will not do QE, it will be called QP = Quiet Printing.
Why even bother to buy the bonds, MBS etc from banks at higher prices to be able to get $$ into banking system.
Just print and give a "loan" to the banks. It's like loaning $$ to a subsidiary... legal. The Banks won the Fed ....so...
yep, this works only as long as the producers of essential goods and services can still deliver.
However, eventually all those paper claims will seek out reall assets.
This time on a global scale. global Weimar motherfuckers.
convinced that the Soviets have been adding fluoride to the United States' water supplies to pollute the "precious bodily fluids" of Americans.
Was the idea to poison americans borne here or were there already fluoride in the water 1964?
What a bunch of bull shit. For markets do not crash when we are collectively so worried; it is like Hyman Minsky’s adage that stability destabilises except that today the reverse is more apt......
But, there's no conviction either - Hugh and without PPT from Central Banks, August and October would have been brutal on equities. If Hugh is bullish, I say go short. He's but one notch brighter at getting right better than Gartman. Short the market - short Hugh.
Dear Mr. Hendry:
you're a fucking idiot.
I don't know, Hugh ....
Once, when my son was 2 years old, he fell down and gave himself a good whack on the head. A Japanese woman who saw it said: "if baby cry, this is good, no problem. If baby not cry, this is not good."
My son cried.
This market is not crying. Hmm.....
Line up the bag holders.
Don't fight the Fed Hugh, now please fuck off.
I would be very embarrassed to be Hugh right now. What a fucking clown
Today's market is a central bank + HFT's market because of...
1) fragmentation (many exchanges + dark pools) and
2) illiquidity (because of fragmentation).
If both the 2 points above are resolved, then the market will revert back to investor's market.
The world is at peace and all is well. Do not panic!
Hugh - please remember what the pharmacist told you:
More common side effects
Incidence not known
If any of the following symptoms of overdose occur while taking Bullmarkitain®, get emergency help immediately
Hugh is condescending himself to the BTFDipppers Club. All this magical levitation since August, tells me that the FED & CB's of the the world, will NEVER let the markets fall again...that is until gravity pulls them down.
They are the highest quality green pieces of paper and with state of the art security gizmos as an added enticement.
Here now, take lots! They'll print moar!
https://en.wikipedia.org/wiki/Crane_%26_Co.
Fed-financed stock buybacks put a pretty solid floor on this thing. Just think through how much the S&P has increased relative the supply of FRN's since the market low of March 2009. They hid another 40% of market crash via currency debasement.
The result is ZERO connection between price and financial value. I guess that there is no absolute reason why there has to be a connection between price and financial value. There could be simply a correlation between price and value to the NSA. Business schools would have to change their teachings ... or not, if it suits the powers that be to tell your up and coming business people one thing when reality is another.
... it all seems kind of slimey through. Wall Street is just such a pile of filth.
The market can stay irrational longer than you can remain solvent if you are a bear. I remind myself of this everytime I think its a great opportunity to short this pig. So far I haven't lost a dime.....haven't made anything either, but am still solvent. Guess I will just wait for the deflation to acquire more property.
Where are the little cartoon bears to tell us what to do?
I think I have got it now. Hendry has "Gone Native" (think "Dances with Wolves"). He is a Bankster now, or close equivalent. The new Mr. Pangloss now thinks this new "Mediocre" is OK and is now willing to dance away to the music along with the other wolves.
Personally I thought he was more interesting when he was whingeing about the Fate of the Banana.
One more thing. Now that Hendry is a Banana (precisely the thing he warned about earlier:
http://www.ft.com/intl/cms/s/0/382ae750-8fb1-11e1-98b1-00144feab49a.html
(sign in for your free account - worth every penny!)
It is refreshing to find a new version of Hendry in the persona of Keith McCullough at Hedgeye, who warns that hedge fund correlations are 0.85 to Beta (all the same banana now). Talk about a crowded theater!! Combined with, as he says, low levels of liquidity...
https://www.youtube.com/watch?v=5TEm_MwctgY