Odey Sees "Terrifying" Outcome Between Arrival Of MiFID, End Of QE

There is a dark cloud of tangible desperation over Crispin Odey's recent monthly letters, and not only because he went "all in" on central bank failure exactly one year ago... and failed. With his fund down 10.6% YTD, and down 31% LTM, he knows he may have 1 Hail Mary left, two tops.  Which explains why as of August 31, the Odey Asset Management founder - who back in May asked rhetorically "why do i remain stubbornly bearish" - has bet it all on red, or inflation, and as his Top 10 position breakdown shows, he had a net 135% short in gilts and JGBs. As for the rest of his book, with just 25% of his top 10 position net long (ex gold), Odey's view on risk assets remains the same: a crash is coming, the only question is when.

It is here that things get more interesting, because while traditionally Odey has bashed central banks for perverting and manipulating asset prices, this time he appears to have found another variable to help him goalseek his cataclysmic conclusion that it is all about to crash, and in his latest letter, Odey now says Europe's upcoming research rule overhaul will result in less trading, less price discovery and less efficient markets.

He is referring, of course, to MiFID II, which Odey writes in his latest letter, will cause the cost of capital to rise "as information is going to become harder to come by" leading to investors with different levels of information and resulting in those with less access to analysis trading less. As previously discussed, the revised "Markets in Financial Instruments Directive" starts on Jan. 3. and forces firms to separate the cost of research from trading-related expenses incurred with investment banks.

It's not just the impact of MiFid however: just as information flow is being curbed among the sellside, the Federal Reserve will be accelerating its balance sheet shrinkage. “For asset prices, a change to QE would be far from a happy solution,” Odey wrote in the August Swan Fund letter. “What is terrifying is that MIFID II is arriving when, thanks to QE and the sight of endless cheap money, companies’ shares are at their most expensive. Hindsight is going to have a field day.

Maybe. Or maybe in hindsight it will be Odey's endless war with central banks that will be his undoing.  Or perhaps Odey's luck - we use the term loosely when it comes to the (former?) billionaire - is finally changing: having posted a miserable series of monthly losses, "In August-17 the EUR class returned +1.9% against the MSCI Daily TR Net Europe (EUR) return of –0.8%."

His full letter is below:

Manager's Report


Sidney Homer in ‘A History of Interest Rates – 2000 BC to the present’ had to deal with the period before interest rates existed. What was the natural rate of return given by nature? How many eggs from a chicken? Economists started life as alchemists. All governments dreamt of creating gold out of base metals. All kings wanted interest rates to be lower so that growth could be stronger.


Now for 10 years we have enjoyed what they could never achieve. We have enjoyed rates of interest which were below the natural rate thanks to QE. It has allowed economies to grow so that we are now at the point where that growth threatens to be met by an inelastic labour supply.


It has so far proved disappointing for productivity globally which hovers around zero percent. But that reflects that QE has not been helpful for allocating capital. Take tertiary education in the UK. Over 20 years the university student population has grown by 650%. When student fees were increased by 300% to £10,000 p.a. in 2012 the thinking was that this would turn students into consumers. That they would demand value for money and more appropriate courses. But it hasn’t. Why? Because students still see the loans as free money. They have understood QE very well. The misallocation of resources continues but now when the student finds there is no job at the end of his / her degree, the sense of injustice leads them leftwards politically.


QE is no longer the easiest option. But, for asset prices, a change to QE would be far from a happy solution. We are now approaching MIFID II’s implementation and it is apparent that the effect of pricing research is that information is going to become harder to come by. Markets work off free and abundant information and views and multiple pricing points. MIFID II looks designed to ensure that individuals trading in a market will have different levels of information and as always the one with less information will start to trade less.


Less trading, less price discovery, less efficient markets. The cost of capital should rise. What is terrifying is that MIFID II is arriving when thanks to QE and the sight of endless cheap money, companies’ shares are at their most expensive.


Hindsight is going to have a field day.

Finally, for those wondering, here is Odey's P&L since inception.


ebworthen Mon, 10/02/2017 - 20:39 Permalink

Unlimited leverage and central bankster Ctrl+P means Wall Street gets drunker.Guess who will have to clean up the puke and the soiled underpants?  Toni Q. Citizen.

fx Five Star Tue, 10/03/2017 - 05:34 Permalink

Odey is a brave man, certainly. As an investor, I would run for the hills, nonetheless. Odey lacks a sense for realities, flexibility and proper risk management. The smart thing to do is fighting the right battles at the right time. Instead, the guy reminds me of an underdog boxer who suffered blow after blow from his opponent but doesn't change his tactics and instead keeps pretending that the final round with his lucky punch is just around the corner. While in reality, the fight is barely in the 4th out of 12 rounds

In reply to by Five Star

fx Steelio Tue, 10/03/2017 - 05:33 Permalink

Yes and no. When some day one satoshi becomes the equivalent of one bitcoin, you will essentially have increased supply by 100 million times. Is there anything in the BTC code that would prevent another split into even smaller units? Serious question, not a rhetorical one from my side, since I am not an IT geek and lack the knowledge to properly answer that question.

In reply to by Steelio

NoDebt Mon, 10/02/2017 - 20:46 Permalink

MiFID is going to create thinner markets?  The rule that calls for the unbundling of research from other trading/brokerage fees?  THAT is going to tear markets apart?  REALLY?Who the fuck needs research when everyone just indexes everything? 

GoldHermit Mon, 10/02/2017 - 20:48 Permalink

My favorite scene in the Big Short is when the guy heavily invested against the mortgage market is getting killed, but hanging onto the trade by a razor’s margin. He is lying on his back in his office just tossing a basketball up in the air and catching it again. He knows in his heart he is right, but the market continues to rage on. I must believe that is how this gentleman must feel about now.

asteroids Mon, 10/02/2017 - 21:09 Permalink

Jesus. Don't fight the fucking FED. The lying FED isn't going to shrink their balance sheet, ever. It's going to take a long long time to bleed of the trillions that have been printed.

hairball48 Mon, 10/02/2017 - 21:15 Permalink

Yeah, I think Odey right too, but...I don't underestimate the power of the Fed and its pet member banks to "do whatever it takes"....until they can't. And who knows when that will be?I'm just glad I live out here far away from any large population centers. Because...when the shit finally hits the fan this time, things are really gonna jump ugly. We've all seen recently how people have reacted to what are truly silly provocations. The riots I witnessed in the 60's will pale into insignificance compared to what I see coming. The USA is a very impatient and violent society compared to the 60's.Think what the reaction of literally millions of public union pensioners will be when they see their sacred union pensions and health plans go broke.The coming fight between taxpayers and pensioners will be a true 5 star popcorn event.Yeeeehawwww!!

Son of Captain Nemo Mon, 10/02/2017 - 21:14 Permalink

"Odey's view on risk assets remains the same: a crash is coming, the only question is when."...

"WHEN" Crispin?...

What hasn't happened in the last 4 years alone that has bankrupted our economy beyond anything imaginable with the overthrow of government(s) in the Middle East and Eastern Europe that has U.S. on nuclear death watch since Ukraine 2014 and Syria 2015 that has seen us go from $8 trillion to $21 trillion in that space of time?!!!

Is that "CRASH" enough of for you?!!!

Yen Cross Tue, 10/03/2017 - 01:29 Permalink

  Odey why don't you STFU and let the banksters fuck up on their own? When guys like you start offering your "two cents" the banksters just prolong the agony for all of us.  If you're so fucking sure, then place your bets, [keep your mouth shut] and quit trying to play both sides of the coin.

Lord Peter Pipsqueak Mon, 10/02/2017 - 21:43 Permalink

I've said it before on here and I'll say it again, it never fails to amaze me how intelligent people think they can beat the Fed with their unlimited money created a the click of a mouse, who will run out of money first?I see he lost over 50% last year and 13% the year before that and 11% YTDWhy now? WHat is different? The Fed will raise rates AND still prevent the market from crashing!Crispin Odey will I fear end up in the same position as Hugh Hendry, some time next year his fund will be wound up. 

gregga777 Mon, 10/02/2017 - 22:07 Permalink

The only research that anyone needs is the graph of five big Central Banks balance sheets: the US Federal Reserve Bank, Bank of Japan, European Central Bank, Bank of England and the Swiss National Hedge Fund, I mean Swiss National Bank.

ds Tue, 10/03/2017 - 01:22 Permalink

Has he just awaken to deformed markets with CBs playing to get the outcomes of their models ? The paper asset markets spin on their orbits with no links to the flows of goods and services in real economies. If you want to trade in deformed markets, first learn to fish in muddy waters. HF macros have largely not adapted to use different fishing gears. Until the market crash, the 99% do not stand a chance against the wealth protection arsenals of the 1%. The wealth protection arsenals include gaming of all regulations concocted by Banksters and sincere IYIs. 

Chryoprase the Troll Tue, 10/03/2017 - 03:07 Permalink

The problem is that he doesn't just have to be right; he has to be right before his investors lose faith in his predictions. Sounds like a losing bet to me. Whay not just BTFD and keep on taking the management fees like everyone else?

JailBanksters Tue, 10/03/2017 - 07:22 Permalink

Even if they could stop buying all crap the Banksters don't want.Janet is still going to be pulling dirty money out of her ass for her Bankster Buddies to loan out to fresh suckers.Nothing has changed in 100 years, except who's ass they pull it out of.