Odey Asset Management is one of the few funds which hasn’t been able to capitalize on the strength in the first quarter. The fund is down 8.87% year to date, with 8.29% of that decline coming in February. We should also point out that Odey was up an impressive 41.19% for 2018, a year that was difficult for many hedge fund managers.
Central bankers drove gold demand in 2018
According to his March 31 fund update, which was reviewed by ValueWalk, six of Crispin Odey’s top 10 holdings are short positions. Two of his four top long positions are gold-related, so he apparently really likes gold right now. His gold-related positions are a long in Barrick Gold and a long in Source Physical Gold P-ETC.
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He said in 2018 there was no reason for gold "not to fall sharply" to the Fed tightening and rising real interest rates in the U.S. He added that gold did well because the world's central banks were buying the yellow metal. In fact, Odey said central bankers preferred to buy gold over each other's currency. He also drew a comparison between what central banks were doing with gold in 2018 and what commercial banks were doing in 2008 when they refused to lend to each other "because they knew what they were doing to their own balance sheets."
We noted earlier this year that some central banks were buying gold for the first time in years. HSBC also said in a report that central banks are expected to keep buying gold in 2019. Odey seems to share this forecast, so it sounds like he is bullish on gold because of the demand from central banks.
Concerns about the credit crunch
Odey's biggest holding is a short in the 6-month Fix/Float ICE LIBOR GBP. He's also shorting the long gilt future for June expiration and the Japan 10-year bond for June expiration.
He remains concerned about the debt problem, noting that debt deflation is becoming a worse and worse problem rather than a shrinking one. He pegs global debt at roughly $230 trillion versus $84 trillion in global GNP. Additionally, he believes investors are now "accustomed to almost no economic cycle." Thus, the decline in industrial activities as represented by large stockpiles across multiple industries is seen as only a temporary issue.
"The first quarter earnings' numbers which are about to follow will show the pain of all this, as felt through the P&L, but we are assured markets will look to the future and indeed on the back of easier monetary conditions and some fiscal easing in China, there are signs that this downdraught is flattening out," he wrote.
He also explained the problems he sees with the world's central banks, which seem to be pulling out all the stops to keep the global growth cycle going. He describes the issue as "endless pump priming," which he said has resulted in full employment and declining growth in productivity.
Odey's top non-gold positions include a short of Lancashire Holdings, a long in Shiseido Company, a long in Telefonaktiebolaget LM Ericcsson, and a short of Berkeley. He highlighted their shorts in the semiconductor industry as causing some pain for the fund's portfolio. He also noted that technology was again the top sector in the first quarter, with software companies leading the way.
Tesla has "little chance of surviving"
Odey also wrote about oil prices. Oil is up by more than 30% in 2019 as oil reserves have declined from 14 years a decade ago to 10 years now. He explained that the global oil supply would be coming up short if output in shale oil hadn't increased dramatically to almost 12 million barrels a day. He finds the oil industry "interesting" because of all the activity with little profit and "real questions over replacement."
He is also still shorting Tesla, which he said has "little chance of surviving" because of its willingness to produce cars at a loss. He noted that the auto industry in generally has been producing electric vehicles "at any price and cost to themselves, to stay in business." He added that Tesla is a "poor manufacturer at the best of times," but it is now being "forced to compete with good manufacturers." Traditional automakers have increasingly been turning their attention to the EV market, which is why he sees them as a great threat for Tesla, which churned out EVs at a loss for many years.
This article first appeared on ValueWalk Premium