For Crispin Odey This Is The Engame: Hedge Fund Billionaire Goes All In Betting On "Violent Unwind" Of QE Bubble

Tyler Durden's picture

In mid-August, when the market was enjoying its low-volatility grind higher, we observed that one of the biggest bears in the hedge fund industry, Crispin Odey, was having a bad year, with his hedge fund sinking some 30% through the end of July. Since then, conditions have only gotten more precarious for the billionaire hedge fund manager, and as the FT writes, for Odey, who is betting it all "on a violent unwind of a QE bubble", the endgame may have arrived.

As Miles Johnson writes, "many financial commentators have warned that current monetary policy has inflated a bubble that will one day violently pop. Few of them have risked money betting on the precise manner in which a chaotic unwinding of quantitative easing will play out through financial markets. This makes the portfolio of Crispin Odey, a London-based hedge fund manager, an interesting outlier. Mr Odey is one of only a handful of investors who has backed up his dire prognosis for the global economy with a series of large, leveraged trades designed to pay off in the event of a crash."

To be sure, as we noted two months ago, Odey's bets are predicated on a collapse of Japanese bond prices, a surge in the price of gold and immolation of equities. Or as the FT puts, it, "If it works he may make hundreds of millions of dollars for his clients. If wrong his fund may not survive."

However, while for Odey the endgame of fighting the Fed (and other central banks) may have arrived, he may have a problem cashing out, even if correct. As FT observes, a closer examination of Mr Odey’s individual positions reveal the ways in which he has translated his views into a set of assumptions about how markets will move in the event of a crisis. The biggest risk he now faces is even if the denouement he predicts finally arrives, his trades may well not react in the way he intended.

Some thoughts:

Odey’s first big assumption appears to be that market turmoil will cause the value of the US dollar to rise against other major currencies. His flagship hedge fund holds 104 per cent of its active currency exposure in the dollar, according to his most recent letter to investors. This presumably is based on the idea that severe market stress will see investors rush into the safety of the largest global reserve currency. 

However, "this assumption needs to be questioned. In the event of a market catastrophe the only major central bank that has the ability to cut interest rates is the US Federal Reserve. If the Fed is forced to take action this could see the euro and the yen rise against the dollar, rather than fall. Added to this both the eurozone and Japan have comparatively strong current account positions. The dollar may indeed surge in a crisis, but it would be unwise to bet your house on it."

Mr Odey’s second big trade is that Japanese government bond yields will explode higher as financial markets realise that the “all in” Bank of Japan has run out of ammunition. Some macro hedge funds have over the years attempted to short JGBs based on the idea that the country’s indebtedness and poor growth was incompatible with its low yields. JGB yields have continued to drop, leading to the trade being nicknamed the “widow maker”.

Here too, there is a gamble even assuming central banks lose control: "the premise that JGB yields will rise during market turmoil is no certainty. The Japanese are the world’s largest single owners of financial assets, which in the event of a crash would presumably be sold and funds repatriated into yen. Over the last two decades a strong yen has tended to coincide with a fall in Japanese government bond yields. Betting against JGBs in anticipation of a crisis may have painfully opposite consequences when a crisis arrives."

But all of the above pales in comparison to Odey's gold bet:

Mr Odey’s single biggest bet is that the value of gold will surge. This gold position represents an eye-watering 100 per cent of his fund’s net asset value, meaning a large rally or fall in its value may dictate the fate of his entire portfolio. His intellectual justification for the position is well rehearsed. He recently observed how “central banks have printed $80tn of money, backed by only $1.27tn of gold”. The real value of this “printed” money has therefore been debased and logically should fall when priced in gold.

Even here a "cashing out" problem emerges, because shoudl China implode, gold may end up being sold not bought: "Odey’s long gold position interacts with his overarching premise — that a crisis starting in China explodes through global markets. Large amounts of global gold demand come from Asia."

In other words, while massively levered to an unprecedented, global failure of QE, Odey may not be able to profit even in that case, or as Johnson concludes "for those of us watching from the sidelines the lesson should be clear: predicting a crash is far easier than ensuring you profit from it." What he ignores, also, is that in a worst case scenario where faith in not only central banking is lost, but fiat currencies lose value as a result while banks keel over left and right, just who will honor their contractual agreements to cash your shorts, or novate your CDS?

For Odey, the answers better come soon, because the only thing worse for his hedge fund and LPs than the end of the world coming in short notice, would be if central banks once again manage to keep the artificial market calm, cool and collected and levitating ever higher.

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Raffie's picture

The world is at the point where it has to work harder and harder to hide the true picture of what is happening and coming to us.

Like back in the day when Enron was trying to hide a Billion Dollars.

That was like trying to hide Mt Everest in the middle of the desert.


Mercury's picture

"If it works he may make hundreds of millions of dollars for his clients. If wrong his fund may not survive."

Now there's a Q3 client letter that makes you put down your coffee and re-read.

SomethingSomethingDarkSide's picture

Tell that Fat Fuck to overload the VIX Management Algos or S&P ain't budging!

The Saint's picture

I'm glad to see this guy is long The Sky.  I don't think I would really like to see the Sky fall.

Maybe he's Chicken Little in real life.



Bush Baby's picture

This guy is a ZH Reader on a serious crack binge.

If he can hang in there till the end of the year he's got a 10% chance

TahoeBilly2012's picture

Hard to collect when the skies are pink with mush room clouds.

lance-a-lot's picture
lance-a-lot (not verified) TahoeBilly2012 Oct 4, 2016 3:29 PM

QE systematically destroyed American society.

Dudeskis's picture

Yeah... Fundamentals aside obviously, I dunno if I want my fund manager fighting the FED.

Raffie's picture

He will be found beat to death by a sack of door knobs and will be called a suicide.


RaceToTheBottom's picture

I would not be surprised to see that his colleagues are lining on on the opposite side of his trade, actively pursuing his demise...


And BTW, Nail Guns are the approved method of Suicide these days....  Twenty or thirty shots to the head.


I MISS KUDLOW's picture

Who fuckin cares,,,,they need to do with whatever they are going to do,,,,,,,,,,,,i run a small business,,,its been a mess since the gold price peaked in 2011, choppy at best,,,,One thing i did notice on days and weeks the gold price goes up lets say from 1300-1365 i have a boom,,,,,,now we've drifted lower again back to 1300,,,guess what sales suck again,,,,


QUIT fuckin with peoples lives man,,,,this shits gotta end one way or another,,,,,All i want to know is if i should quit may small business and just go get a job for the fuckin governement so i have a steady paycheck...


Liquidity Injections, failing banks,,,,bankrupt companies and now countries,,,,,i actually am begiinning and hoping everything goes to zero and its on,,,,,,,im ready

RaceToTheBottom's picture

"QUIT fuckin with peoples lives man..."


Thinking about other people except for perhaps the personal satisfaction they feel as they rip off other peoples face in some deal, is the last thing in the world these people do.  

They are entirely focused on what they can get for themselves....


max2205's picture

How's ICann and the other shorts doing from 3 to 4 months ago 

fukidontknow's picture

If you've been in business for yourself it's unlikely that the government would hire you - wrong attitude and all.

East Indian's picture

If he is right, the Fed will not let him survive; if he is wrong, his clients will not let him survive.

BandGap's picture

Very simple picture between the paper and the real.

$0.50 - 1.00 to go for the "Danger Zone"

jm's picture

Always painful to see someone go "all-in" on a losing bet.

bh2's picture

Remember he just racked up £220 million betting on Brexit. And all the bookies were wrong.

Four chan's picture

owns paper gold, not impressed with strategy.

American Psycho's picture

should have bought physical from Deutesche and demanded delivery.

Nolde Huruska's picture

Lesson #4:

The market can remain irrational longer than you can remain solvent.

Here endeth the lesson.

Squid-puppets a-go-go's picture

'there's only so much you can fuck with the formation and preservation of Capital/

before farmers stop producing food and meat seeking people descend on unwitting zoo animals'

F em all but 6's picture

True. But there is no market. only the fed. Are they solvent?

Nexus789's picture

Another one of the worlds useless wankers.

ejmoosa's picture

Sometimes you just gotta say "What the FUcK".

-Risky Business

Erek's picture

...If you eat too much,
Oh, oh,
You'll awake,
With a tummy ache.

Read more: Shirley Temple - On The Good Ship Lollipop Lyrics | MetroLyrics
OregonGrown's picture

.............WHEN IN ROME...........

buzzsaw99's picture

his logic: if A happens, then B, which will lead to C, causing D, in which case GOLD BITCHEZ!! good lord, he's a ZHer.

Raffie's picture

NO, Silver bitchez TILL the ratio gets to about 20-30 to 1 then swap out and get gold....

The ratio is to high for gold right now, but it will drop soon to something more real.

Arnold's picture

Silver rings

Are you listening

In the light

Rounds are glistening

A beautiful sight

We're happy tonight

Stacking in a dystopia wonder land


Later on
We'll conspire
As we dream by the fire
To face unafraid
The plans that we've made
Stacking in an aphasia wonderland

Read more: Christmas Carols - Winter Wonderland Lyrics | MetroLyrics
jldpc's picture

The dude is an idiot. They will keep printing until you need a wheel barrow to buy bread. Who is going to throw them out? Who is going to enter the Eccles Building and string them up? In the meantime he is just a target for manipulators who will clean his clock. The problem with reasoning/theorizing is it is not action; the rich will keep this going damn near forever - until the guillotines are brought out again - and used for real.

vasallo7g's picture

under your scenario, gold would be an excellent option


I forsee a Crispee Kritter on the unwind...................

Tim Knight from Slope of Hope's picture

I'd say today's complete collapse in precious metals probably doesn't help his year.

vegas's picture

Dear Crispin, I'm betting you needed that "big" jar of vaseline for today's gold action huh? But no worries, it was only down about $50 per Oz. or so, and you can always buy more, right? WTF, you make Gartman look like a genius.

Jack Buster's picture

Fuck it! I'm all in. 

sheikurbootie's picture

Oh the little minds on ZH today.  Gold future contracts turn into WDR, which turn into a numbered gold bar corresponding to the WDR.  I've done it several times.  Gold future contracts ARE real gold.  The other stuff in his portfolio, not so much.

If you fuckers think Apple, MS, etc are going to keep your 401k's afloat, you're 100% wrong.  The Fed will not be allowed to buy or will try and fail to prop the stock market up.  The stock market is a big bunch of artificial digits in the air.  You own nothing. 

Buy gold.

Arnold's picture

Interesting, considering the Japs followed our financial lead twenty years + ago, and have trod their own path since.

 The Fed is confused, the Primary Dealers are not.

Bonds (eu), equities (japs),  Debt Derivative Instruments (Fed).

Debt and debt service is the only game in town.


GoldLion's picture

That strategy worked like a charm today, NOT. Gold futures got creamed.

Dark Daze's picture
Dark Daze (not verified) GoldLion Oct 4, 2016 3:08 PM

Sure they did, but the question is how? Did someone actually sell 5B of physical gold? I think not considering that just a few weeks ago the US bought 26 tons of it from Switzerland.

I've been following currencies and gold for a long time, and what happened today is either a desperation move for liquidity coming out of Europe or another paper gold massacre. In either case I fully expect the price to at least recover in the short term. Medium and long term is anybody's guess, and definitely, when and if the markets collapse again, gold will drop, possibly massively to be followed by an equally massive rally.

Collectivism Killz's picture

I find it curious how so many people, including on ZH, are driven by the emotion and event of the day. If gold were up 3 percent today everyone would be talking about how it is going to the moon. It drops 50 bucks with the Shanghai exchange closed and everyone is talking about the total collapse of PMs. I am concerned by today's movement, but feel there are some major geo-political and economic events to come in the next month or so that can take things in many different directions. Come Monday, this guy could be proven a genius, or his fund can go belly up.

Raffie's picture

ZH does not forecast but only discusses the events of the day.

Knee jerking markets usually generate lots of conversation any how if good or bad.

Yellen is partly to blame for this crap today since she mentioned fed rate hike which is utterly insane but did it to crush the PM market. She pulled this crap before and like clock work the sheeple freak out and dive into the USD thinking it is a safe haven.

Whatever....  we just gotta wait for the FEAR to stop and sanity (or partial sanity) to return to the masses. 

RadioFlyer's picture
RadioFlyer (not verified) Raffie Oct 4, 2016 2:56 PM

Totally agree.  There are a lot of ZHers in here jerking.

marx's picture

Now you know what ZH is.

It's an Echo-chamber and a Dog Whistle.