In a somewhat more manic-than-usual introduction to his 2016 macro outlook, Eclectica's Hugh Hendry - the first of the big bears to throw in the towel and kiss the ring of central planners - admits that things did not turn out quite as he expected, noting "I used to be a big deal", that "I had $1.5 billion in AUM" most of which "walked out the door", and that "life is cruel."
While the entirety of his presentation is certainly worth watching, what specifically caught our attention were the occasional, and rather troubling, streams of consciousness during which we get a glimpse into Hendry's current frame of mind and, frankly, we are a little concerned, because while we have no doubt in Hendry's investing genius (even if he did decide to infamously flipflop in 2013 and many of his LPs decided not to stick with him), the content of what he says is just a little troubling.
This morning i ended up in an accident in emergency and I just to dispel any rumors that it involved having superglue on my hands or anything else embarrassing. But I'm back, I'm better, albeit my ear is a little bit ringing. And life is cruel, people keep getting younger. The Joseph Stiglitz interview was broadcast on British TV 6 years ago in 2010.
As I say to my children, I used to be a big deal ago 6 years ago. I was at a party recently with some younger girls who represent some fund of funds in New York, I said "I am in global macro, I run Eclectica"... nothing. They had never heard of me. So if I may continue with the introduction, I feel actually now that I have to.
My shrink says I've got to get over it, that I keep wishing to express my identity. My identity lies in a post-dated envelope which is going to come through my door in ten years time, and on that number is my compound growth rate. I am that silly person who somehow defines myself by performances... I have survived, I am like when you spill red wine on the carpet and you scrub it, and that stain just won't come out, it's difficult to get rid of me. I've been running a global macro fund for 14 years, now one of the longest running London global macro teams, and we have compounded at 8%. I wish it was 18%, I would still be on the beach if it was 18%. But with 8% comes a degree of accomplishment I believe, because that 8% has been accomplished with a set of return that just have not correlated with anything. I am eclectic.
* * *
For two years I didn't take any risk. I had $1.5 billion in AUM. For me that's a big number and I had clients who thought I was negative correlated to the stock market and they were fearful, Investors are fearful: it's one of the most bullish things about stocks today apart from their profound underperformance to fixed income markets.
On his intellectual metamorphosis from bear to bull:
I had a Damascene conversion. I was one of those angry, curmudgeonly Austrian economists. I made over 30% in 2008, I won. My AUM halved. But then you had this QE and all those people who didn't see it, who took the reckless bets, they all came back. We had a chance to kill the vampires and we missed the chance. Purge the system of its rottenness; we failed to do it. That's how I lived; one should never be angry, it's such a negative force and I got over that. I survived for 14 years because I was good at making mistakes.
And then this:
Back to my rant about central banks: they were right, I was wrong. The notion that QE has distorted the integrity of market prices is kinda right, but is kinda right in a benevolent manner because without the courageous intellectual decision by the American Federal Reserve to introduce QE shortly followed by the Bank of England, I think without a doubt we would have had another Great Depression. So QE has influenced the integrity of market pricing because it took away the very real risk of a depression. In that sense, equities are worth more.
So without the "courageous intellectual decision" by the Fed to take away "tail risk" and thus eliminate one of the fundamental tenets of capitalism, namely "risk", equities are worth more? Well, sure. The only question is what happens when the market finally sees through this massive, global experiment in central-planning, one which by definition means that every asset is overvalued. Indicatively we saw glimpses of that before the Shanghai Accord unleashed an unprecedented central bank re-stimulus attempt.
But the saddest part is Hendry's James Joyceian lament of how he lost virtually all of his AUM - it happened when he infamously flipflopped from bearish to bullish in 2013, a shift we profiled in "Hugh Hendry Throws In The Bearish Towel: His Full Must-Read Letter."
A funny thing happened at the end of 2013 I wrote a letter to my new clients and I began with the preface "what if I was to tell you that I'd become bullish on equities; is that something you'd be interested in."
The resounding message no. A billion dollars walked out the door. "What, really, you're bullish?" This is cabaret maybe I should be in show business. Bullishness, optimstic, bearishness, there are adjectives that are very demeaning to the endeavor of global markets.
In 2013 I was flat and I had one client who said "Gee, if only you had been down 15% I could give you more money, but this being flat, I feel uncomfortable."
At this point Hendry proceeds to lay out his returns, proudly noting that in 2014 he made 10%, in 2015 he made 6% (mostly on the back of China), and "this year we are flat" (according to the latest HSBC report as of March 31, as of March 31, Eclectica is down to -5.9%).
He goes on: "I am not very good in the company of others; with the greatest of respect to bank credit analysts I've never had a call from a buddy at Goldman Sachs, JPMorgan, Morgan Stanley, so I am the author of my own mistakes, but I want to tell you I am very, very good at making mistakes."
We honestly hope this is not the latest one.
His sad story aside, we urge readers to watch the entire presentation below to see how an honest, in their own mind, transformation from crushed bear to just as crushed bull takes place, as well as Hugh's quasi-contrarian view on what will happen to China next as well as to the Renminbi (he completely disagrees with the Kyle Bass view that a major devaluation is inevitable) which he says "is the key to the markets today", something he also touch upon in "Hugh Hendry: "If China Devalues By 20% The World Is Over, Everything Hits A Wall."
Full presentation to Skagen