If you want a strong view on the global economy and markets right now, look no further than Hugh Hendry, founder and chief investment officer of the $200 million Eclectica hedge fund.
Hendry told the Reuters Global Investment Summit overnight that his fund is betting on the break-up of the EU in a trade he says could deliver 30-35% returns to his fund.
The reason he’s taken the bet is that Hendry believes National Front leader Marine Le Pen has a “very high” probability of becoming French president at next year’s election.
Le Pen herself said after the US presidential election win of Donald Trump that his victory “made possible what had previously been presented as impossible”.
Hendry also noted that Dutch far-right politician Geert Wilders is doing well. These political trends could lead to the break-up of the EU.
“The biggest risk to the global economy is the acute and impending political crisis in Europe, which monetary policy does not have the tools to resolve” he said.
Hendry told the audience that the analogue for the break up of the EU is Britain’s withdrawal from the gold standard in 1931.
“Just one member leaves and it becomes extremely vulnerable” he said.
But he was only prepared to share one of the three legs of his trade with the audience. He said that he has a bet on the spread between Italian and German 10-year bonds.
With the Italian constitutional referendum to be held on December 4, Hendry may not need to wait too long for his bet to start paying off.