Star Hedge Fund Manager Warns Equities Investors

Crispin Odey, a hedge fund manager who made millions by successfully predicted the 2008 economic downturn, has recently warned his customers, predicting that a major recession is soon to come. At 55, Odey is the founder of Odey Asset Management, a hugely successful hedge fund that deals with more than £7.6 billion for investors from all around the world.

In his December 2014 report for investors, Odey highlights the major issues he thinks have led into this upcoming recession, including the “faltering Chinese economy” and the fall in commodity prices for products such as oil, themes he has been hitting on since the second quarter of 2014. In the report, Odey goes on to elaborate on the way in which he believes the economy will deteriorate:

  • “Firstly, I think equity markets will get devastated. Unannounced business cycles ensured Japan’s stock market rating fell by two thirds over 20 years.”
  • “Equities are priced for perfection, pushed up by SWF (sovereign wealth funds) and high yield investors looking for higher yields and better covenants that high yield bonds.”
  • “Commodity-related sectors look unappealing and dangerous.”
  • “International consumer companies look overexposed to EMs (Emerging Markets).”
  • “Volatility is rising. Not every trade will work.”
  • “Australia is still to see rates down to 0.5% at the short end, 1.5% at the long end, down from 2.5% currently.”
  • “Currency trading is still to make the money. It made money last year as it was where the ‘tyres hit the road’ — equities are just the residual.”
  • “Equity markets will struggle to understand the quarterly translation and transaction effects of these currency moves on corporate profits, starting with Q1 2015.”

The amount of monetary firepower that was used during the 2007-09 downturn, Odey believes, will make this potential recession even harder to crawl out of. “If economic activity far from picks up, but falters,” he writes, “then there will be a painful round of debt default…We are in the first stage of this downturn.”  Although Odey could be wrong, his insights in the past, particularly in regards to the most recent financial crisis, paint a worrying picture for the economic future.

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