Hugh Hendry, brash and bold CIO, Eclectica Asset Management, made an appearance January 12,2009, on CNBC Europe with Geoff Cutmore, and strongly asserted that government bonds are still the best bet for investors these days. This is must-read, must-view. Hendry has been a no-nonsense, fresh voice in the midst of all the noise. Click image below to watch:
Here's a synopsis of his appearance:
- When it comes to treasuries I don't care about the next 30 years, I care about the next 30 months.
- The Euro is a flawed mechanism and that spells trouble.
- There is no money on the sidelines. We have had one of the most profound periods of wealth destruction in the last 12 month. Billionaires are throwing themselves in front of trains. Sideline cash is a myth.
- Debt of all forms went from a generational low of 110% of GDP in 1974 to 360% of GDP recently. We have supersized everything. In 25 years it will be back at 110% of GDP. That has profound implications on valuations and asset classes. It puts a downward damper on everything.
- Government bonds are still the safest bet for investors in these uncertain times, and the euro will face an uphill battle as weak economies will need more flexibility, Hugh Hendry, Chief Investment Officer and Partner at Eclectica, told CNBC.
- Bonds are showing us that "it is ferociously dangerous outside... Businesses are failing, wealth is being destroyed," Hendry told "Squawk Box Europe."
- "The people who tell you they know what's going to happen in the next 12 months are either foolish or liars. I'm going to be flexible in my mind and flexible with my portfolio," he added.
- Many analysts said corporate debt was cheap and investors would be better off in company bonds than in shares, but Hendry said that the big difference could be justified by the fact that the cheaper debt is the one that reflects the grim reality of falling earnings because of the economic slowdown.
- "We took savings to zero in the Western world" and now that savings are retracing, they will most likely go into bonds, he said.
- "People are going to buy US treasury bonds because the dollar is going up and that's going to be more attractive than Chinese bonds for example," Hendry said.
- The euro zone faces tough times as the PIIGS-Portugal, Ireland, Italy, Greece and Spain-will need a flexible exchange rate to compensate for the economic slowdown so some of them may decide to break free from the single currency's straightjacket, he said.
- "The euro is a flawed mechanism. The euro has no flexibility. We need drachmas, we need lira, we need pesetas... and we don't have them," Hendry said.
- In the current climate of capital destruction, big oil and agriculture are relatively safe bets as they are not leveraged, while other areas of the economy have big debts, he said, adding that companies who had anticipated a low oil price are also on top of his list.
- "It's an enormously difficult task to be bullish on oil today," Hendry said. "If you're bearish on oil you should own BP , you should own Shell ."
- Their shares have been largely flat, but nowadays "flat is wonderful," Hendry added.
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