At present the lights are being turned down in the markets but the good fund manager, like the good pianist, will be the one who can play in the dark.
That’s Crispin Odey getting seriously gloomy and abstract in his latest note to clients.
In fact, existential angst has become something of a trend amongst London fund managers. Earlier this month Hugh Hendry was basically arguing that the future has become too difficult to predict and those who claim to have any any idea are liars. He also penned a piece for the FT comparing the state of the hedge fund industry to “the plight of the banana”.
Meanwhile, Odey has turned to the life and times of Edmund Burke, the 18th century philosopher, for guidance on the eurozone crisis.From his April letter (our emphasis throughout):
We are all self-obsessed about the age we live in, but Burke was not. Living at the time of the French Revolution, he was the first to recognise that the war that would follow would be different to previous wars by dint of the fact that many of your own nationality would be supporting the other side, thanks to it being a war of ideas. He was quick to see the influence of Rousseau in the placing of Man at the centre of all things and the consequences of such thinking, which is now totally pervasive in the modern world, and is exemplified in the sense of entitlement that is ubiquitous. He sought to defend a world built on what he called the wisdom of antiquity and sanctioned by experience: with governments only to expect respect if they themselves respect justice and liberty in equal measure.
It’s not immediately clear how this relates to our current woes, but then Odey goes on to elaborates on why he thinks Europe is doomed.
The lack of easy political solutions to the current economic crisis is dangerous. The sense of entitlement is not easily answered by democratic governments, when that entitlement cannot be fulfilled.
Moreover, there is no prototype of a “government-lite” alternative political economy to the one built up in the post-war period. The monetary authorities in Europe will not do enough to reduce the effective cost of borrowing for banks in Europe. They need literally to print €4 trillion which they will not do, thus making any recovery almost impossible. Meanwhile an attempt by Governments to spend their way out of recession without a working banking system is as useless as a car on a boat. Europeans are instead praising the UK for David Cameron’s leadership!
Needless to say, Odey doesn’t think Cameron is the answer to all our problems.
By implementing the Vickers Report he is committing the UK to the depressionary future of Europe, without any sense of what that will do to his government’s ability to fund itself and fulfil the woefully over-inflated expectations of his voters.
But America may have a future.
In such a dangerous world, it is no wonder that the USA appears attractive. Entitlement may be becoming an issue brought in by Obama, but the integrity of the institutions in the USA has ensured that she has the ingredients to survive and prosper. A banking system that is profitable, a growing loan book, asset prices that are cheap enough to encourage sensible investment and an energy policy, which allows fracking, has given the USA a marked global competitive advantage – cheap energy. At a time when other economies are turning away from market solutions, the USA still believes ‘just’ in the good sense of markets.
For reference, Odey’s £1.4bn Europe-focused fund is up 18.5 per cent YTD but down 11.4 per cent over 12 months.
Nice timing, of course, for this sort of stuff given Greek developments…
Hedge funds ride European bank rally – FT
Crispin Odey: ‘horrble’ 2011 has produced bargains – The Telegraph
Hugh Hendry: “Short” the BRICs, Japan, and Eike Batista – Brazilian Bubble