Crispin Odey Q1 Conference call can be found below.
The Odey International Fund experienced a difficult March quarter with the Fund down 21.9%. Negative performance came predominantly from short equity holdings in the Materials, Financials, Consumer Discretionary and Energy sectors.
Central bank measures in a world of QE
Since the second quarter of 2014, Crispin Odey, manager of the Fund, has been warning of a faltering Chinese economy, slowing economic growth in developed markets, and a fall in commodity prices and emerging market incomes. At the heart of his message has been a concern that global central banks used all of their monetary firepower in the economic downturn of 2007-09 and now have less ammunition to deal with future negative growth shocks.
In this month’s commentary, Crispin discusses central banks’ role in a world of quantitative easing and the ‘side-effects’ of zero interest rates. “In a world of QE and low interest rates, banks become increasingly unprofitable which may lead them to become that much more reckless in pursuit of higher yields to expand into sub-prime, auto loans, leveraged loans and credit cards. It certainly does not encourage them to lend naturally. Without lending and credit however, economies will find it, as Japan has shown since 1996, difficult to grow.”
QE does however have an important effect. It drives all savings to embrace higher yielding assets globally. Life insurance companies and pension funds push more money into faraway places. However, if the credit transmission is not there to support increased activity, QE is merely encouraging misdirected investment. Recovery rates from EM destinations are more in the teens than the 20 percents. Is this good signalling by central banks? Remember it was Keynes, the architect of their thinking, who said, “It is good for people to travel, goods to travel but not for savings to travel.” The disconnect between travelling and arriving may be coming home to roost. It will make the retreat from Moscow appear painless.