JULY 27, 2020
Confessions IV: How many times can you say sorry?
Gold stocks surging. Fund performance recovers. Explaining the explosive convexity of gold miners. Another hedge fund manager from Glasgow – his family built ships. Nokia a tale of then and now. An unhappy time in Mustique and David Yarrow convinces me to set up my own business. Fund +4.1pc FTSE All Share -9.8pc.
MAY 11, 2020
Confessions III: Commodity Speculator Paradise
The gold stocks arrive @ Eclectica A very deep gold mine Buying the WORST in case you’re proved correct. Plasticine Macro trader. Barry Callebaut. A party overlooking Red Square with Jimmie, Mark & Nassim. Fund +1.8pc FTSE All Share -6.9pc.
Hi, guys. This is Hugh Hendry. Ahs, you know, Or perhaps you don’t. But I was responsible. I manage. I launched I was the chief doughnut for the eclectic and microphones between 2002 on late 2017 a 15 year beauties on. This is the third instalment ofthe confessions where I take you back in time, I take you bike to the bottom off the bear market off the great TMT crush, which had started in late 1999. And so here we are. Prices don’t 80% in terms of these technology names on I have lies. The micro front on it is no December. And for the month of December, I’m pleased to say that I staged something over comeback in true eclectic style. Um, what is that star that star typically would have meant We were. We had a profile which was long volatility on those can. A pivot moments when there was panic in the markets of markets were don’t hard, Marcus. We don’t rapidly. I would typically have hoped that that would have been a factor or a catalyst which would have spurred a post of piano within our for them. so December was one of those months. Thie British stock market The footsie all share was down the best part of 7%. As we approach the end of calendar year 2002. And as I approached the end of my first quarter as a hedge fund manager, I’d ask you to remember that hedge funds, really They’re just like high end. Some might even question the high end, but they’re like restaurants is a high risk endeavour. Lots of restaurants fail. The majority fail in the 1st 12 months on. That’s equally true of hedge funds on the fabulous returns, part of that always itself to survivorship bias to those who, uh, who make it through that first year, feeling talent is 400 fighters. But for me back then, I wasn’t sure. I mean, I wasn’t gonna be judged at the end of 2002 but at the end of 2003 for sure, If I didn’t get my arse off the floor and start producing a decent poised to return, especially given our positioning at the bottom of a bear market, then I I probably would no be recording this today, but as it was with the market down 7%. Thie eclectic of fund was up the best part of two or 1.8. So kind of like the mirror image of the first month when we began. If memory serves me right, I’m probably making this up. But it felt like the market. Um, I for sure we would. Yeah. I think we were done like 4.8. The market was up seven. Probably overstating that. But these returns in December allowed me to close out the quarter being down three. Um, not fatal, but, uh, I’m off the market up 1.5%. So you’re running a kind of long ball running an idiosyncratic micro portfolio. And using this all equity highball, um, indeed, shortfall Equity index, if you will. So, you know, we’re not comparing apples with apples. However, that’s that said things are kind of beginning. Tio, I’m sensing I mean, clearly nothing like making it all about what I want to say. It’s all about the market, really kinda getting pushed, pushed, Lord, and you discovered that actually, you’re making money. And so my pecker, if you will, is up. I’m talking about a commodity speculator Paradise. Now that’s kind of where we went to, but this was still a rather speculative town. But clearly I’m feeling more confident on in the opening commentary, which, of course, I passed on you, Khun Way make available the underlying commentary. If you visit Hugh Hendry official, you will see the underlying written paper that we sent out to clients. But we were noting that in this kind of in the comedy of 2002 you know, we’re kind of economy in America is recovering, but you gotta remember like the sisters was the first radicalisation. We’ve gone from Fed funds rates of 6.5% although we don’t have 1.25%. I mean, that was a big whoa fighter. So monetary policy is very much in its ascendancy fiscal policy, the Yadana 1% GDP expansion. Nothing kind of like in today’s world they were coming back towards as Thie year approached. It is end coming by with the ambition to spend another 1% but still kind of nothing. The dollar, given not big tsunami like cut in rates, had weakened and fall in the best part of 10% so we kind of know there’s a lot of liquidity in the system on, like I was saying, It’s it’s very unfair. The monetary system, like money, really flows to where it’s most required, which would be to say, distress businesses and distressed households on instead, that liquidity that’s coming out of this faulty plumbing system, if you will, is going to cons like me on is going to things which are inflating, which were in acid acid price up trains on back then That would be soft commodities. That would be the FX off commodity nations like New Zealand, like like Australia. That would be the universe’s the dollar on. That was soon to be the Galactica Fund. You’re to see kind of mine, improve sentiment, to speak and like feeling a little bit more confident in myself because we’re beginning to have some risk on the pole for you. We’re running 120 gross, with 80% of NTV being dedicated to the belongs and just under 40% to the shorts. When I look at the short names, I really can’t make no rhyme or reason, Teo, why we hot those names? I guess when I look at the long short, you could kind of say what was appropriate is that we hide something off an RV trade. We were long commodity cyclicals on. We were short large carp on dependable staples. My problem. Bolivia don’t see in that position today as well. But the big change is the gold Boys. Aaron Time Gold shares have entered into the thie. Eclectic. A hedge front on We’ve got the blue chip names. So we’ve got 5% in new more. We have five per cent in gold fields, Slightly larger position in a shanty. We got 2669% position in the CR B commodity futures index. I had talked about Packer talked about picker being up. We have 5% in Durban Deep don’t burn deep to the uninitiated in lots. In there is a term A Norman is a Norman, which is to say what is it is. It is to say that the name tells you something. This there’s always a giveaway, if you will. On what was the name telling us here? This was a profoundly deep South African mine. I don’t think I ever met it. All I heard was a very deep mine. It was pretty much all the time. Unprofitable. But if you were to kind of, like, multiply the gold price by two or three X, the marginal gain and profitability would be stark. And so a stock, which was probably honour you would discover that you were kinda on two ex. Nothing like doubling the gold price. But on 12 x, you were probably buying this on a 50% plus earnings. You on. You default be unsustainable. Never. The price will move higher. But I want to say this. Remember, this is from a kid who was school by this Adam brother. Very Edinburgh based. A very, very diligent, very professional. Very big doer, analytical house. You know, we had the time we controlled risk by investing in superior companies, and he and I was to sink returns by very much. Unsub ut in Scipio Companies buy. I guess I was pursuing. I must have read this in one of the disorder or spooks. Once you have a narrative, you go to Cannes, a bar bell into the best companies. In case you’re wrong on the very worst companies, in case you’re right. Uh, not always stuck with me. So 120% growth equity on remember the really the qualifying fighters. People would think their short. I’m going to go on, they’re going, They’re going to make money from their shores when they lose money from the Longs and therefore they’re diversified kind of market neutral. In my experience, there was always those moments where you’re lost money on both sides. And so really, it was better to look at your record book as being just 101.2 times. You were geared long, if you will. That’s a very pessimistic way. But it’s kind of for someone who was seeking tenure for someone that wanted Toa last for someone that wanted the opportunity to come back and do this thing again and again. Again, I found thinking about in those towns was helpful. Um, so 120 then we’ve got 60% in currencies again, pretty much in the equity line. We are like I said, long cyclicals, shore staples in the currency. We are long commodity producing nations like Australian Museum, predominately New Zealand. At this point on, probably short those FX crosses. Where is the country like the yen where they’re having to predominately import and import commodities. And so the terms of trade are against him, but 60% so it sounds large. It sounds like it’s half of our gross equity, but but currency? Paris The daily price volatility is very, very low, certainly in comparison with equities. What it was in a heater off quantitative easing the volatility of all risk assets has has fallen. But that said, a 60% allocation to FX on a risk adjusted basis would probably be no more than about 2025% of any V. To put it in some context, a 5% position in dark deep would be like it 25 30 if no bigger NTV position in a currency swap. Like so we had, You know, it takes a lot of swagger at the bottom of the market. 5% of your NTV invested in Dar Pindi, of course, turning to the stock inside stock in sight. Really, I don’t want to spend too much time to fight. I think I’ve got no more than a minute or so, but we had body kala boo, but calibre was very much it’s like arm Saddam commodities. It is another very, very solid, boring business cyclical business, a business with uneven progression in earnings because they were always struggling with what’s called the refining. Which of these guys are wass largest producer of cocoa and effort? You’re you know you’re there tonight ordering your your dog chocolate. Most likely the cocoa came from these guys out of West Africa, but with that refining margin, your earnings every to every cycle would be much higher. But like trying to nail it to the court, the annex, like a gaming company, entered the game company built like a bedding company, pops erotic, and therefore the stock was afforded and announces you would have I want to see 15% or price an anger issue of six for me. I’m actually I have to say I am a little shame faced because I was typically, but it was a set up. What I’ve done is not only have I shown you the fight, but I think this was a nine biker from where we bought it. But a wrench point was ordered for me because typically I was buying new highs. I was buying up trends and here I am, doing the opposite. I got really, very lucky. Where with this stock, Because the tent because or these voices in my head that I alerted We’re really not giving me a message. It was more, I think, the intelligence team from my analytical department that was saying, Hey, look, you want commodities, you want explosions to soft commodities. This guy there’s body calibre is a very, very sound very, very cheap company which will deliver. But so what I’ve done is to share myself like when you how it looked, not today looking by, but at the time. And you can see I think the only defence for my purchase was that it had broken is dying trend. But this was not the strongest base point from a technical perspective for me to launch an investment. And maybe that’s why because, you know, here we I think last week I’m Saddam commodities for the 20 Bugger. This is a nine biker. You know where you didn’t? You kind of made 8% after fees compound over 15 years. So maybe is a little bit of risk. We might touch planets. I’m sure will touch upon this at another stage. But my good friend Steve dropped me. He christened me the Plasticine micro trader. I would kind of break my narrative down into hundreds of little positions, like a centre Pete s. I always had feet in the game, if you will, but I could explain my position was Molly, but I could expand and I could take down. I could change my mind. I could chop these positions out because they were kind of small. But of course, the smallness perhaps prevented me from harmlessly bigger gaze questionable in my head. And then finally, you know, when I think about this Piano ho, here we are again entering the third act in Morton Markets in 2020 again, I would reflect on 2020 vision. But let me give you a little kind of anecdote from it. Wasn’t 2002 probably 5 4006 on guy I’ve been asked to present at a Russian investors for him which forward? Close on the use of doubles. Andi, I had you, like in typical fashion, had made a name for myself, probably by being rude, but I have been invited to this Viper party overlooking Red Square. And there, would you believe, is my father, Jimmie Rodgers. Nassim Taleb. I mean, it was just an astonishing evening and I was bumping off. Hm. I have Bean order panel with nothing. He was not interested. I was like a nice guy I loved. The book is like, Go away. Okay. Jimmie Rodgers. We’ve always had a love hate relationship. He’s that kind of guy, Um, and Mark the most over sex financial brain in the world on so I would have not seen after the presentation. It’s kind of like me. Come up. What is your name again? I say, Hugh Hendry, the Ouija in weeks and you walk away. Then he combined Eating easy. Tell me again, what is your name? As if we’d never had that conversation, I would be sitting with Jimmy with all these kind of kids. And Jimmy’s a Gordon and Jim and you know, he was again. He’d bean on the commodity market and he would open up his his such I condemn putting out like a silver quiet. You should buy silver or in an industry supported you bring her a socio sugar. Say she was going to the moon and then in another pocket of gold. And I came here like, really? What else? What if you got in your shoes? That was funny. And on dMarc was just in the mark. Mark Farber was just looks like all that’s missing is the white car sitting on is sitting on his love. But he left shortly afterwards, I think, to pursue other and endeavours in the Knights of funny times. The boom market was fast approaching on my losses. We’re recovering relative to the markets. I hope you will join me next week when we move into the new calendar year year of 2003 which ultimately despite some hiccups, ends in being a great triumph on, perhaps secures my tenure, but a little while. So, uh, thank you very much for listening and goodbye from ST Barts.
APRIL 28, 2020
Confessions II: Is there something better than great sex?
1 Month Eclectica Fund -0.1%; FTSE All Share +0.8%
YTD Eclectica Fund -4.9%; FTSE All Share +9.0%
What did I do when I discovered Amsterdam commodities?
In my head, the voices are saying, there’s gonna be a commodity boom!
But it’s incredibly hard to find equity exposure because investment banks just present you more of what worked last time. All we could find were strange creatures like Amsterdam commodities: no website, absolutely zero interest in talking to us…
That’s why they call it a brave new world…
Okay, this is not a rhetorical question. This is meant to be Confessions Part Two, where I will be discussing, what am i discussing? I am discussing the second month in the life of Hugh Hendry. That’s me, as a global macro hedge fund manager. Confessions Number One, I hope, I understand, 3000 people, thank you very much, have downloaded the podcast, and many others, I guess have witnessed me on my Instagram. Again, thank you very much those of you who made it to the end, I feel very self indulgent. But here we are towards the end of the day in St. Barts, is ten past five, I hope you can hear me and yeah, the Odey as it was, I was a partner at Odey. At Odey, and I mean, my god, talk about pressure people. Blitz, I’m quoting from the document, here we are replying, I’m on time. I hope I can keep this to 10 minutes. For the quarter today and so that’s for two months into the three month quarter and the stock market is up nine and my fund is down 4.8% Oh la Vash, for the month it was a stock market was up nearly 1% and I was down eight basis points those call them flat in terms of my investment management report, kind of blob but it actually is not blob because it’s the first indication that I say that we’re building a short position against the dollar. And as you know, the other night, I was putting out some thoughts, really some contentious posturing on the dollar on the desire of the Fed to stop the dollar rising, are we living again in a moment of dollar debasement and in those tweets, I was kind of, again, going back in time to this moment to you at the end of 2002. As we looked ahead to remember, Eclectica, was meant to be I want to say that we spend our life, life is, is capricious, the writer, like unexpected things happen that people say, but who would have thought that in the days on Eclectica was kind of like me. I was the guy that kind of thought that and I never could I monetize those eclectic thoughts and posturing. So I was accumulating a short position against the US dollar. And what was I buying, I was buying commodity futures, principally the CRB index and you see that I touched on charts of where the launch of Eclectica was easily what turned out to be the bottom in the gold price and these are the CRB, these commodity research charts, and what do you see? You see a long descent, the descent into hell in terms of the bear market, you can see that in terms of duration it was long, I want to say more than a decade but let’s say a decade and then, what you see was that the cities started to stop falling that it no longer lost its purchasing power versus the risk asset alternative risk assets like stocks. Of course the reason for that was that stocks had then collapsed during the sell off from late 2000. Politically the technology sell, but regardless, stocks didn’t and that was a mess. And that was like dropping the stone in the pond which had created that curiosity in my mind to know more and to set my research team out there to ask questions and try and legitimize whether we could really come in and hold a lot of these commodity futures. In terms of, I’m looking now again, I’m looking at the paper, I’m looking at holdings that the top five longs and shorts is, what can I say? is better than last month. We actually kind of have positioning the previous month, again is kind of normal is kind of what we don’t show you in these things, but at least you can see the tiny marriages like 4%, in the CRB contract for January delivery, 4%? Yeah, big deal 4%. But I can assure you behind that would have been like it thought was a little pitter patter commodity type plays. I hope you can hear me, it’s kind of is windy out here. And of course like a moron I forgot to turn off the sonar system realistic to lease scratch Perry to keep the mood. Okay, I say that and then miraculously the music stops, which is probably my daughter’s, we compete to be the DJ. And, but really the thrust and if I’m going to keep this short and I hope the volume’s stays out, I promise you I am going to get a microphone. But the stock insight was Amsterdam commodities. And there’s many things, there’s principally three trains of thought: there was the analyst, my analyst, George Lee, I want to talk about George. So let’s… what are the three? There’s George Lee. Let’s have fun about Amsterdam, Amsterdam commodities. And let’s talk about this notion that is: is there something better than great sex? Question mark. George Lee. I hire George. I had a very bizarre selection process. George came to me and I charged, I mean, my God, he just was this piece of rock that have yet to be chiseled yet to be framed. He came to me I want to say, like, just out of all proportion from the graduate recruitment cycle is like, yeah, I kind of should have done this earlier. I kind of forgot. You could say complacent, but you could just see there was an immense mind working away. That was just abstract from a real life. And that’s kind of what I was seeking. So I hired George, I reckon, I hired the people that no one else would hire but well done me because in this instance, George, who worked with me for nigh on 20 years was just an absolute intellectual rock. So let’s have fun with Amsterdam commodities. And here is a question. What did I do in Amsterdam, when I discovered Amsterdam commodities? Because I fear perhaps too much time was spent in the cafes of Amsterdam, because there really really was very little to hang your hat on in terms of why you would buy Amsterdam commodities. Memory serves me right well I’m looking at it, at the noise, it traded it so it made its own market in literal commodities like not next pepper and other exotics and then it could kind of play around and broker between rubber and probably palm oil, something crazy like that. So, remember I, in my head this paranoid schizophrenic, the voices are saying there’s going to be a commodity boom market. It’s incredibly hard to find equity exposure because stock markets investment banks just present you the kind of the, the Zeitgeist of the time and what is very going to become the Zeitgeist. And but all we could find at this point were offers and like strange creatures like Amsterdam commodities, strange in the sense that, like no website, absolutely zero interest in the stock market, why it was quoted, I don’t know, a nondescript building. They didn’t want to have investors and they didn’t really share that much information. No, you know how to stand for I was many years later, at the height of the bull market, with our investment in the Brazilian sugar company, where I traveled all the way to Brazil, and the mother what watsa refused to see me, see the real vision interview with grant millions. If you want to understand that one better, but I was more forgiving. It was the beginning of a bull market. And like I, I always say I was building the centipede and I needed lots of little positions. So, and what? And it kind of got his act together and it harder now earnings you’d have about 13-14% and you got to, either was it a free cash flow yield of 10? Or you actually got a 10% dividend yield? I’m not sure. I think they were quite generous but in paying it out. Kinda not much. And yet, it just shows you that’s my last point. This point of: is there something even better than great sex? I remember doing this presentation in a crowded hotel, a four year room in Paris, where I now reside when I’m not in Saint Barts and I love the fresh because they just kind of get it as like, you know, I asked, is it a rhetorical question? I asked that question. You know, is there? Let’s just cut, let’s just go back in time. For some of us who may be a longtime for others. You know, I’m sure it was close to the present. And just imagine how wonderful that moment was. And is there something better? I’m going to tell you there’s something better and you could have had a pin ball in that room. And of course, in the veto in the, in this kind of finance world where, you know, the surface layers are very, very thin, and the thing that was better than the greatest l’Amour ever was the notion of making 10 times your money. Imagine like, you bought something for 100 bucks, it goes to 1000 bucks. Wow, that’s hard to beat and remarkably, such is the power of buying stocks at the beginning of a bull market. I want to tell you that by 2010, so eight years or so later, eight years, almost seven years later, and when you look back, this stock had been, if not the best, then probably in the top 10 Rock & Roll list of best performing stocks in Europe for that period. What had happened obviously commodity prices ended it and of course, we then hired the discovery of businesses such as what became the very controversial trader or alarm in Singapore and you had a structural price earnings rerating of these businesses. Amsterdam commodities today, rerated and the problem with it was back then kind of enormous looking at it and be the dividend yield was high, but it could be erratic, once you… and it didn’t matter because it didn’t have a lofty valuation. But once you start putting these things on, you know 15 times earnings, so I said we bought it on and now earnings yield of about 14 so P of seven, but like at a P of 15, 16, 17, 18. You’ve got to have that consistency and predictability, cash flow and payout and Amsterdam commodities is many, many wonderful things even though have a website, but it certainly doesn’t enjoy that predictability. So when dismisses certainly not an expert on it today. But was that better than great sex? I don’t know. See you next time for Confessions Part Three.
APRIL 16, 2020
Confessions I: Eclectica Fund -4.2% FTSE All Share +8.1%
I cry, You Cry. New babies, catching fallen angels, too early for rate cuts.
Baptism of fire: launching a global macro hedge fund at the bottom of the bear market.