Eclectica hedge fund manager’s Hugh Hendry is seeing incredible bullishness in the market today.And he loves it because he disagrees with it. He wrote an article about it in Investment Week today.
Not willing to wait for official rate hikes, the money markets have taken matters into their own hands: a hawkish series of rate increases has been priced into forward curves.
We are now very close to the rate pricing environment of 2004/07 when the global economy enjoyed almost unprecedented strong synchronised growth. The message from the fixed income desk is clear: we are preparing for a global boom.
Of course by “we are preparing for a global boom,” Hendry means everyone else.
Net, the fund lost 1% for the month. We are bearish and the market is bullish.
Basically, Hendry’s sentiment can be summed up in that one sentence: he’s bearish; the market is bullish.
While even I have to contend the global economy is growing robustly once more, I struggle to believe it is possible to recreate the intensity of the boom experienced three to five years ago.
It’s in the hedge fund manager’s character to be contrarian, and naturally Hendry says he is enjoying doing the opposite of the “stampede” to buy investments that will pay off in case rates don’t rise.
And he’s crossing his fingers for even more rate hikes because that way, he believes, he’ll be poised to gain even more when the uncertainty finally hits the markets.
The stampede to protect against the certainty of rising rates is creating a very attractive background for us to re-engage with the market place…
Perhaps I am being greedy (or masochistic) but … an actual rate hike from, say, the Bank of England would create a safer pricing environment to re-enter receiver swaption packages as we discussed last month. It would be the equivalent of the stock market rally on 20 March 2003 when the US finally announced its assault on Iraq.
Good news, bad news, it doesn’t matter; markets just love certainty.
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