Hugh Hendry December Letter: Last Bear Standing? Not Any MoreVW Staff
Hugh Hendry discusses his reason for becoming bullish in his December letter to investors, a copy of which was obtained by ValueWalk. Below the full letter from Hugh Hendry can be viewed.
Also see Bitcoin Compared To 3D Printing By Hugh Hendry, Who Would Buy Both and Newly Reformed Bull Hugh Hendry’s Eclectica Flattish In October
What if I were to tell you I was turning more bullish? Is that something you might be interested in?
We are macro investors. That means that we are constantly exposed to the shifting sands that the world’s increasingly powerful gaggle of central bankers – and the capital flows they encourage – impose on global financial markets. However we tend to stick to our big (and often bearish) views, something that means our performance comes with hot and cold spells. The most recent one – and it doesn’t take a genius to see this – has been cold. It hasn’t been as bad as it could have been for the simple reason that we make big bets when we are doing well and small bets when we aren’t.
We allocate increasing amounts of capital to winning trades and cut losing trades rapidly. We’ve been cutting a lot recently. The good news is that this has minimised our drawdown. The even better news is that our returns have improved lately; it looks as if we are entering a hot spell, and we have begun to reallocate significantly more risk capital to our endeavours.
So what makes me think we are heading hot at the moment? Let me tell you about the character of Bob Ryan, from the US cable TV show Entourage.¹ The show chronicles the workings of Hollywood and Ryan is a legendary movie producer credited with a string of box office winners. His problem is that his success was rather a long time ago. So no one is certain of his skills anymore. His reaction is to make seemingly absurd promises – think along the lines of “…what if I were to tell you that this movie will cost peanuts to make, will earn you four Oscars and will gross $100m…is that something you might be interested in?”
In some walks of life (well, mine anyway) such is the popularity of the show that the expression has entered the modern lexicon as a catchphrase for offering up fantastical, if not actually impossible, ideas. With that in mind,
what if I were to tell you that I have adopted a tactically bullish outlook? Is that something you might be interested in?
Last bear standing? Not any more… I know what you are thinking. You are thinking that the last bear is capitulating. It isn’t a good sign. Maybe it is that simple. But I think it is a little more complicated. We, and I accept we aren’t the first here, sense that US monetary officials may now be willing to subordinate the demands of their own economy to the perils confronting emerging market economies. If that is the case, the great peril is not that the Fed finally tightens monetary policy and US stock prices suddenly tumble from what are very obviously overpriced levels.