ValueWalk reported this week that long-time bear and
short-seller, Hugh Hendry, founder of Eclectica Asset Management,
said he was done with being short when the trends were just not in
his favor at all.
"In his presentation at the Harrington Cooper's 2013 conference,
Hugh Hendry said that the price wars between China and the U.S. are
turning into an endless feedback loop. At one end, the U.S. pumps
up QE to increase dollar denominated trade, in retaliation, China
fuels investment which forces the U.S. to adopt a dovish fiscal
policy again, and the cycle goes on. Hugh Hendry said that at times
like this, following the trend is really all you can do."
Quoting Mr. Hendry, based on an article by Dan Jones of Investment
"I have been prepared to underperform for the fun of being proved
right when markets crash. But that could be in
three-and-a-half-years' time. I cannot look at myself in the
mirror; everything I have believed in I have had to reject. This
environment only makes sense through the prism of trends."
I have heard of this frustration from another famed short-seller,
Whitney Tilson, who months ago said something like "You need to
have your head examined to do this."
As an important aside, the one thing that really stands out to me
about Hendry's thoughts is the comment on US-China trade wars. I
constantly challenge anybody who throws around all-knowing phrases
about the stock market being fueled primarily by QE, as if weekly
Fed bond-buying dollars somehow trickle right into stocks. How do
they know? Where's their proof?
Hendry's macro dynamic explains things in a way that makes much
more sense. Yes, QE props up the economy and all asset classes with
cheap money, but the dynamic of that support is more complicated
than this week's POMO schedule.
I want to share a couple of sober paragraphs from an investment
manager out of Canada called Patient Capital. This was in their
recent letter to investors...
Animal spirits have returned to the financial markets. Driven
by interest rates at near zero levels and relentless monetary
stimulus by central bankers around the world, investors looking for
return and yield have stampeded into all sorts of financial
instruments. Prices across almost all asset classes have been bid
up to unsustainable levels.
Based on long term historical valuations we are quite comfortable
stating that the potential return across virtually every asset
class over the next five years will be very disappointing from
today's prices and in many cases likely to be negative. Most
investment managers have no place to hide because they are forced
to follow very narrow mandates. When the day of reckoning arrives
there will be very large capital losses.
Okay, my questions for today are the following:
1) Short-sellers may be this year's turkeys, but are they also the
vital "birds of prey" of the financial ecosystem, eliminating the
weak and sickly?
2) Is the fact that we are getting this capitulation from top
eagles any confirmation that the bull run is topping (in the
3) Has the traditional December-January running of the bulls come
early and could the rest of the year be about harvesting profits?
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