Previously we reported [6]on Horseman Capital's uncanny ability to generate market-beating returns (outperforming 98% of peers since 2012) despite having a net -50% short position offset by treasury longs. Now, we take a quick detour into one of the prop investment bets used by Horseman's CIO, Russel Clark, namely Hollywood's ability to pull a Dennis Gartman, and make a dramatic appearnace at all the key market inflection points.
From the July Horseman Letter:
I notice with interest, that Hollywood still retains its unmatched ability to call market tops. 2014 film, “Jack Ryan: Shadow Recruit” details a plan by Russia to crash the US dollar and destabilise the American financial system. At the time of the film’s release, 34 rubles bought 1 USD, while at time of writing you require 62 rubles to buy 1 USD. If anything, you could argue that sanctions, plus the US deal with Iran have been a plan hatched by the US to crash the ruble and destabilise the Russian financial system!
Another 2014 film was “Interstellar” a film I enjoyed so much that I think I have seen it three or four times. Curiously, the film begins in the future, but is never explicit in dates. A search on the internet has most people suggesting the film being set in 2060s or 2070s. The film implies that in the 2030 or 40s declining natural resources causes technological progress to reverse and humans to seek a new planet to call home. Curiously, since Interstellar’s release date sugar prices have fallen 35%, milk prices by 45%, and oil prices by 35%.
While I generally cite Hollywood for its reverse indicator power, the literature world can also work. 2014 release and Man Booker Prize nominated “Bone Clocks”, by David Mitchell of Cloud Atlas fame, also imagines a future where energy and technology becomes increasingly scarce, and that China is the dominant country globally. This comes in a story set in 2045, although we can assume that the crisis occurs in the 2030s.
The themes in Bone Clocks seem to match up quite closely with the 2012 film “Looper” which I discussed in my Hollywood note. The film was set in 2044 and depicted a future where the US had fallen apart. The protagonists in the film solely used gold, silver and Renminbi as currency, implying that the US dollar had continued to fall in value. We can see that the creative industry views on commodities have been proven wrong. However, the assumption in Bone Clocks and Looper that China will continue to be ascendant versus the US has not been disproved. From an economic and currency perspective, China has continued to be the one currency that has held its value versus the US dollar recently, and the economy has continued to grow at 7% a year.
There are signs of weakness emerging from the Chinese economic growth perspective and more and more companies report slowing growth. Furthermore, the People’s Bank of China has recently suggested widening of the trading band for the Renminbi to allow more flexibility. Perhaps a first step to devaluing? Your fund remains long bonds and short equities.
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The above letter was written just a few days before China devalued its currency by the most on record.
