As markets have been bouncing quite heavily recently, “we’ve had a pretty good time,” hedge fund manager Crispin Odey told clients in a conference call June 30, a recording of which was obtained by ValueWalk. The London born and bred hedge fund manager’s world view is not limited to Brexit, an event he accurately modeled and reportedly made double digit profits in its wake.
One of Britian’s wealthiest men sees a significant global trend that extends across the European Union experiment and into the US. This trend will impact investors but mostly central banks, shaking them to their foundation. Most meaningful, traditionally private economic discussions are becoming public despite certain words being repressed from even being used in elite company, Odey says. There are ugly topics that the economic establishment does not want to address. Donald Trump, populist parties across Europe and Brexit are not the start of the societal trend and they won’t be the end. If the real issues remain un-addressed the problem will only grow.
The economic discussions censored from public view are most important
It doesn’t matter if an investor has a terminal or multiple subscriptions to high caliper research, there are certain words, topics and economic discussions that are effectively censored from “public” view.
Crispin Odey’s client conference call might be one of them. In fact, in it he addressed “censored words” that were not allowed in the polite economic public square.
The nature of Odey’s comments are perhaps a similar vein to recent commentary from JPMorgan’s Marko Kolanovic. Kolanovic’s accusation that central banks are actively manipulating markets, much like Paul Singer’s earlier pronouncement, went generally unreported. Like evidence regarding the blocking of investigations into MF Global and the whisper topic behind big bank derivatives, certain issues, it can be argued, are forbidden from seeing the light of day.
Brexit was at one point among these heavily controlled economic discussions.
Brexit scare called out for what it was
The “Brexit scare” was well documented at the time, as one-sided reports generally pointed to racism and bigotry as only reasons Britain might want to leave the European Union. Such censorship of the logical economic reasons behind Brexit led to certain unemotional analysts, led by CIBC, that recognized the Brexit vote had a chance for an immediate mean reversion trade. It wasn't about getting the outcome of the vote right as much as it was recognizing the scare tactics and what it meant for investment success.
Odey, with his elite establishment pedigree firmly in tow, points out the economics of why people throughout Europe – and the US – and nails causation to why they are dissatisfied.
What is the cause of dissatisfaction? The establishment meme is that it has to do with racism or anti-intellectualism. Odey, for his part, points clearly to the core performance driver for societal dissatisfaction: elite outcomes are disconnected from the masses.
At its core, the economic fortunes of society’s economic fortunate have decoupled from that of the mainstream, he says. It is an obvious decoupling that can be documented on several levels but is generally being ignored. If "the establishment" doesn't fix the problem, it is likely to get worse – much worse.
Trump has tapped into legitimate economic concerns that should not be ignored even if he loses
Odey isn't advocating in favor of Trump or the gaggle of anti-immigration parties throughout Europe who are tapping into core dissatisfaction and turning anger into their racist end. In fact, the opposite is the case. He is advocating something be done other than the established economic order ignoring the problem.
What Odey is addressing is a long term trend. In the one-hour investor call, the man who was once married to Prudence Murdoch looked at his privileged upbringing and clearly stated elites are enjoying separate economic outcomes than the masses and the results of this societal split is becoming clearly apparent.
“If one is Spanish they should be very scared by Podemos,” Odey said, pointing to the left-wing political party. “They are a revolutionary force” despite the party losing support in the recent election in Brexit’s wake.
But it’s not just in Spain. “The risks have been rising all around and (corporate) earnings have been falling.” Political and valuation risk is in the air and a very real narrative is upon us.
“The story of this year will be Trump, not just Brexit” he said, pointing not just the man, but a global sentiment. Even if Trump loses, he has tapped into a core systemic issue that won’t go away.
Odey views with amazement the US political race. Trump was essentially able to dispatch credible Republican rivals with nothing more than school yard name calling “Lying Ted,” “Little Marco" and now Trump has his claws into “Crooked Clinton,” as Odey describes it. Trump, Bernie Sanders and the lot illustrates the core anger underneath the electorate that their concerns are ignored and that elite success has decoupled from the “average person.”
The popular narrative that Trump is stupid, incompetent, insane or all three is another dangerous delusion. “Where Trump is so cleaver” is that he has now baited Hillary Clinton “to claim that she is the ‘outsider’ when she probably isn’t.” If the election comes down to a battle of elite versus common interests – and the decoupling of elite and common interests is accurately reported – Clinton could find more difficulty than is currently the case.
Elections in Europe and the US are sending a message that is generally being overlooked by elites as "central banks are doing the government's bidding"
Regardless of the outcome, the US election, like politics throughout the economically developed world, should be a wake-up call. In the unwritten social compact, the fortunes of political and economic elites were historically correlated to those of the mainstream, but this is no longer, Odey said. Central bank monetary stimulus, which is breaking into new all-time historic levels, has exacerbated inequality, creating a troubling trend.
“The problem is they can control asset prices by printing money, but they can’t control the economy,” he said. “Now we have a world in which ‘the have nots’ are rising in number. But thanks to the workings of the central banks, ‘the haves’ are still seemingly enjoying themselves because asset prices remain ever stronger.”
A change in discernible if little noticed central bank policy has taken place. Financial repression -- forcing market actions rather than motivating -- is the name of the new game. “Central banks do their government’s bidding and governments tell them to stop recession at any price.”
In the 1970s the concept that a war against full employment was taking place was generally plastered over has given way to the current environment where “the word ‘recession’ is censored in polite economic discussions that determine policy outcomes, Odey says.
Odey points to the problem as central bankers and the core concept of globalization they advocate, which has resulted in fundamental change for average people.
"Average people" who could formerly live a "happy life" in Spain, Italy and France have lost their lifestyle
Where today’s society were once relatively isolated cultures and could live “a happy life” and yet still compete on