Crispin Odey, head of US$11.7 billion London-based hedge fund Odey Asset Management, has a stark message for Australia – recession is coming and there is little the Reserve Bank can do to stop it.
Odey has two key points. The first is that Australia’s over-reliance on China puts the economy at risk.
“China is everything to Australia in lots of ways,” Odey told the AFR.
Not only does he believe the Chinese economy is slowing but also that it is losing competitiveness at a time when expansive monetary policy makes the economy vulnerable to capital outflows.
That’s already happening, according to EPFR global fund flow tracking, ANZ data shows.
Likewise, one of the reasons that the PBOC recently relaxed RRR rules in the Chinese banking system was to free liquidity because of the recent increase in outflows which had drained it from the system.
Odey’s second point is that there is a lack of global aggregate demand.
“We’ve got a very old-fashioned recession which is spreading across the world,” Odey said.
The RBA is doing the right thing in cutting interest rates but Odey believes markets have a misplaced faith in the ability of central bankers to effectively drag the Australian and global economies out of the mire.
“This is the first time in my career where economics 101 doesn’t work at all,” he said
Which means that markets are vulnerable to a correction; one Odey has positioned his fund for.
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