Hugh Hendry: Quantitative Easing Won’t Work

Wednesday, March 4th, 2009

Hugh Hendry, CIO, Eclectica Asset Management, discusses his thoughts on ‘quantitative easing’ on CNBC March 1, 2009. This is must-see, clear-eyed commentary from one of this generations market savants.

Hendry is not known for being a doomsayer, but rather has always deemed himself to be a heretic, putting forward ideas and investing in them, while being ridiculed or vilified at times for taking aim on controversial ideas. While it is, by no means original, to be in the gloomy camp, in these brutal financial markets, Hendry proclaims that most people don’t want to read through the whole story, they just impatiently want to go straight to the end of the story, a decision that, today, could wind up very costly.

Many participants are trying to suspend the notion that we are suffering through a deflationary bust (which is the central plot) and want to go straight to the part where the story concludes in hyperinflation. Hence the reluctance among many investors to invest in long bonds, and the willingness to be long gold at this time.

“The point is that there is no precedent for quantitative easing succeeding. The presumption again in risk markets is that it will succeed. It partly explains why there is this fervor to own gold and that gold is just a one-way bet to making money,” Hendry said.

“I disagree. I think by the end of this year it will be shown that quantitative easing does not succeed in an environment where in America they have debt which is the equivalent of global GDP. How can you tempt people to take even more debt on?”

“I think this is comparable to 1930, so I still have my reservations. But if we were to see a plunge from these level, then tactically I could trade a little bit around oversold levels,” he said.

Tags: Bust, Central Plot, Cnbc, Controversial Ideas, Doomsayer, Eclectica Asset Management, ETF, Fervor, Financial Markets, Forward Ideas, GDP, Global Gdp, Heretic, Hugh Hendry, Hyperinflation, March 1, Plunge, Presumption, Reluctance, Risk Markets, Savants, Taking Aim, Willingness
Posted in Bonds, Gold, Markets | No Comments »

Jim Rogers: Buying Farmland in Brazil and Canada (and farming!)

Wednesday, March 4th, 2009

Jim Rogers, the legendary co-founder of Quantum Fund, is buying greenfields for farming in Brazil and farmland in Canada to get into the farming business, on the basis that farming is going to be one of the great businesses over the next 20 years, and also on the conviction that global shortages of food are coming, coupled with farmers’ inability to get supplies and credit for expansion, will make for very profitable conditions in the long term for investors in Agricultural stocks and commodities.

Here he is in an interview with Martin Soong, on CNBC Asia’s Last Word. To watch this here, click play:

Commodities are still the best play for the long term, legendary investor Jim Rogers told CNBC, confessing that he has been buying farmland himself.

“We’re still going to eat, probably; we’re still going to wear clothes, probably. Farmers cannot get loans for fertilizers right now. So the supplies of everything are going to continue to be under pressure,” Rogers said.

He is the director of two funds which are buying greenfield land in Brazil and existing farms in Canada and starting to farm it. The funds are clearing the land, fertilizing it, irrigating it and hiring farmers and, Rogers said, some day will probably sell the land but that is a remote prospect.

“If I’m right, agriculture is going to be one of the greatest industries in the next 20 years, 30 years.”

Food inventories are at their lowest in 50 years, Rogers said, while the oil and mining sectors are also good bets.

“Even if demand goes flat or down, as it did in the 30s, as it did in the 70s, you can still have a nice market,” he told CNBC.

Despite the recent rally, gold is still a good opportunity if investors choose the right time and way to get in, according to Rogers.

“I own some gold, of course I own some gold. If gold goes down, I’ll buy more,” he said. “The IMF is trying to sell their gold and if they do then they’ll drive the price of gold down a lot. If they do … that’ll be the last opportunity to buy gold in a long, long time.”

“You can buy coins, you can buy the real stuff, you can buy ETFs and ETNs on the exchanges, you can buy mining companies if you know what you’re doing…,” he added.

Earlier this year, Rogers said he liked the Swiss franc and the yen but gave up the Swiss currency. “I stopped buying the Swiss franc when the Swiss (central) bank bailed out UBS. I still hold the yen.”

Asked whether the current collapse in commodities prices worries him, he said: “You’re supposed to buy when they’re collapsing. I expect to own commodities for years, for a long time.”

Source: CNBC

Tags: Bets, Brazil, Canada, Cnbc, Cnbc Asia, Co Founder, Conviction, ETF, Farmers, Farming Business, Farmland, Fertilizers, Greenfield Land, Imf, Inventories, Investors, Jim Rogers, Last Word, Martin Soong, Price Of Gold, Quantum Fund, Right Time, Rogers Canada, Sectors, Stocks And Commodities
Posted in Canadian Stocks, Commodities, Credit Markets, Gold, Markets, Oil and Gas | 3 Comments »

Hugh Hendry: Long 30-Year Government Bonds

Wednesday, March 4th, 2009

Hugh Hendry is bullish on Government Bonds, the long-term kind. In particular, he likes the German 30-year Bunds, which currently yield 4%.

“We are going through the biggest deflationary recession in 50, 60, 70 years. The price [of the Bunds] is wrong.

Hendry is long the US dollar, the case being that as long as the economy is delevering, assets being sold to retire debt, that the end result in the present is that the economy is long the dollar, hence the hard to explain strong dollar.

Hendry goes on to say that he is short sovereign credit, in particular, China, Korea, Mexico, Hungary.

On the subject of US solvency and dollar strength Hendry points out that the US entered this crisis with public debt levels at of 40% of GDP. Japan entered entered its crisis in 1990-91 with similar levels, and today Japan’s public debt levels are 200% of GDP; the remarkable feature here is the strength of Japan’s currency. This 4-fold expansion of public debt may not be the case in the US, but Hendry points out that we’ve got a long time to worry about the US, and whether or not it may have a solvency problem down the road. On the basis of the delevering World economy, Hendry is long the US dollar.

As for gold, Hendry makes himself clear that “too many people today, can articulate its very valid attractions; there are too many people owning gold today, you can’t buy coins today unless you pay premium prices for them.

“Making money is a devastatingly hard business. If I own gold and I open up the paper in the morning and the price of gold is telling me how smart I am to own gold, that is not the recipe for making money. You want to pick up the paper, and be owning government bonds, and every expert is telling you you’re wrong. It feels lonely, it feels horrible! That is how you make money.”

One of the most refreshing aspects of Hendry’s willingness to share his ideas openly, is that even he recognizes that most folks don’t want to agree with him. If you listen carefully, Hendry is not interested in being a doomsayer, he is interested in the opportunities presented by the current market conditions.

This interview is a great lesson on global credit and equity markets and economics, as Hendry eloquently shares his insight.

By the way, Hendry’s Eclectica Fund has been a star performer during the last year with returns of around 40%, most of which has come from investments in bonds. Hendry even temporarily violated the mandate of one of his long-only equity funds by investing in a majority of government bonds and then subsequently went about the process of changing the investment policy to include the allowance for bonds.

Check out global government bond funds. They are reflection of Hendry’s primary argument. If Hendry is right, we are in the midst of a global bond bull market, as a result of the massive amounts of delevering that is underway, in the debt ridden G6 world.

Tags: Assets, Bunds, Coins, Currency, Current Market, Debt Levels, Dollar Strength, Doomsayer, End Result, ETF, GDP, Global Credit, Government Bonds, Hugh Hendry, Hungary, Long Time, Premium Prices, Price Of Gold, Public Debt, Recession, Remarkable Feature, Solvency Problem, Strong Dollar, Willingness, World Economy
Posted in Bonds, Credit Markets, Economy, Gold, Markets | No Comments »