The long/short Odey Swan Fund, managed by vocal hedge fund manager, Crispin Odey returned 3.9% for investors in June 2016, outperforming the MSCI Daily TR Net Europe return of -4.3% for the same period. However, even after this positive performance, the Swan Fund is still deep in the red for 2016, according to a letter to investors seen by ValueWalk.

Odey Down 33.4 Percent YTD Holds Tight; Warns Of Major Recession Ahead

Described by FE Trustnet as “one of the worst performing funds available to UK investors in 2016” during April of this year Swan’s losses were more than double the next worst performer in the Investment Association universe of more than 3,500 funds. At the end of June, the fund was down 24.7% for the year, down 27.1% over three years and down 28.5% since inception. Since inception the fund has returned a compound -9.6% per annum compared to a CAGR of 6% per annum for the MSCI Daily TR Net Europe.

For the month of June fund’s best performers on a sector basis were Financials and Materials up 3.9% and 2.3% respectively. Holdings in the Energy and Industrial sectors produce losses of -1.1% and -0.5% for the fund. Individual best performers were Randgold Resources and Lloyds Banking Group. The worst performers were Pendragon (-0.9%), Anglo American (-0.9%) and Sky (-0.7%).

Odey-july

Odey Swan: Crispin Odey On Central banks

Crispin Odey is perhaps best known for his manager commentary, which is included alongside his monthly fund reports and the June ‘Manager’s Report’ for the Swan Fund doesn’t disappoint.

Crispin Odey: China Bank Loans = Spain 2007

In the report, Odey attacks governments, central banks, and Europe for their desire to ‘stop recession at any price’. Odey blames this desire for the rise of extreme politicians like Trump, the desire for the UK to leave the EU and the lack of global trade growth. He compares this environment to that of the 1970s, when after a period of rapid growth, governments became obsessed with the fact that nothing should be done to endanger employment, giving trade unions all the power and allowing inflation to get out of hand as productivity fell and wage increases became inflationary in a way they had before. This economic stalemate was only broken down by Reagan and Thatcher — politicians willing to take on the unassailable unions and risk higher unemployment.

Odey: CB Action Is A Disaster; China Is The Worst Culprit

The UK decided to join the EEC in 1973, just as today it has decided to exit the European Union. Both were difficult times.

The world had enjoyed continuous economic growth from 1945 to 1973 – what the French called the ‘Trente Glorieuses’. But in the 70s, the world trading platform started to stutter and break up. Productivity fell to low levels and what had driven the impetus for growth – the profound desire, after the thirties, to ensure full employment – meant that wage in- creases now became inflationary in a way they hadn’t before. A system which was collec-tivist in construction – government and big businesses – started to crack, especially after the oil price rose 400% on the back of the Arab / Israeli conflicts. The problem was that governments were obsessed with the fact that nothing should be done to endanger employ-ment and this gave the trade unions all the power and allowed inflation to continue to rise. Just when the communist revolutionaries were expecting the system to break up, capital- ism fought back. The problem behind the lack of productivity was that governments were in charge of the show. Let markets dictate asset allocation and society live under a regime of free markets and all will be better. By 1979, in Reagan and Thatcher, there were politi-cians willing to take on the unassailable unions and risk higher unemployment.

The effect was electric, but what ensured that it was to last for over 30 years was that at the same time that market forces were allowed to act, there was the privatisation of credit. Before 1979, by and large, credit was available to government and big businesses, and with exchange controls in place, savings were largely tortured and torched within their own countries.

The effect of privatising credit was that individuals could become better off, even if their incomes did not rise, from a growing balance sheet. Globalisation followed but with it competition became ever more fierce. Societies were forced to change to compete or risk falling behind – a uniformity and conformity to economies the world over became observ-
able, which has involved great pain.

Now we come onto today. By 2009 we in the developed world were running out of the benefits of credit growth. Asset prices were just too high for incomes – the young could not afford to buy houses – falling interest rates had already created asset bubbles. Produc-tivity was falling and suddenly banks were endangered by over-leveraged unwise lending. Interest rates fell to zero in 2009. Six years later and it is becoming obvious that ‘Houston has a problem’.

“Productivity is not only around zero in most developed countries but falling into negative territory. Market forces are no longer driving investment decisions on the allocation of resources – driven out by governments using central bankers as their conduit for extending credit.

Just as in the 70s the unthinkable was rising unemployment and for 6 years governments were willing to watch rising inflation rather than address the issue. So from 2009 onwards, ‘recession’ is the word that is not allowed.

Central banks do their master’s bidding and governments tell them ‘stop recession at any price’.

They can control asset prices by printing money but can they control the economy? ‘No’. So what we have now is a world in which the Have-nots are rising in number and, thanks to the workings of central banks, see the Haves still seemingly enjoying themselves on the back of rising asset prices.

It is no wonder that politics are moving fast to the extremes. The politicians and the central bankers are serving each other but not the common purpose. In such an environment you must expect ‘Brexit’ to win, Trump to succeed.

In such an environment, whither the Euro? Remember the Euro has ensured that Spanish and Italians and Greeks, who before were able to pursue a lifestyle, which was protected by currency devaluation, now, with a fixed exchange rate, the competition is felt immediately and the southern state employees are forced to become ‘German’.

Why do I write this? Because capitalism is now being blamed for something that they are not party to. This is etatism and the central bankers are the trade unions of this debacle. No wonder that Trump is determined to get rid of the Fed. Just as in 1979, politicians realised that they had to turn on the unions, so today the central banks with their endless printing of money need to be stopped, or capitalism will be blamed for consequences not of their making.”