On the edge of a precipice
Views of Hugh Hendry, 10 October 2006

China is the Frankenstein child of US monetary policy.

The US is a consumer and China is a producer. If the US consumer stops buying, the effect on Chinese production is magnified. And by the way, China and India are boring stories. They are boom or bust economies and just happen to be going through boom times at the moment.

These are some of the controversial opinions from Glaswegian Eclectica hedge fund manager Hugh Hendry.

When asked whether one should buy retail stocks — well, that’s just a dumb question.

On a CNBC discussion panel, the fund manager recommended buying gold at $450, holding until $3000 if you’re conservative. But the truth is, he sees it long term going all the way to $6500.

His outlook for next year is one of continued volatility and for institutional investors, his recommendation is T-bills.

But for the small retail guy, he says it’s difficult to find some value. Perhaps some asymmetrical bets on a stock like UK Vodafone where the dividend is seriously pleasing at a 6% yield, hedged by an “out the money” put option. The telecoms are remarkably cash flush at the moment.

He believes the equities market is for “herders” and the sophisticated investor should be in bonds and currencies.

The controversial figure acknowledges that other market players see him as mad and bonkers, but his job is to be ahead of the trends.

He sees a hard landing for global economies and warns we are on the edge of a precipice. The CRB Index, which has tripled recently, is well on its way to halving.

And this is from a man who wears cream suits, brown shoes and leaves the top shirt button undone. He also listens to the voices in his head instead of following established research.