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.
