Hedge fund manager Crispin Odey: Crispin Odey, the manager of the London-based hedge fund Odey Asset Management, recently expressed his opinions on the U.K., Europe and the U.S. In an event set up by Financial News, Odey discussed the economic situation on both sides of the Atlantic.
Regarding the economic recovery, Odey told Financial News that while a 4% GDP growth rate can still be reached in the U.S., potential overvaluation in the stock market represents an intermediate-term danger. “At some point we all know that the only thing that will stop bond yields from rising is when short rates start to rise. Once that starts to rise, you are re-pricing capital and then suddenly a growth stock shouldn’t be on 30 times, it should be on 20 times and that is very painful,” he said.
At the same time, Odey considers the main problem is that both the U.K. and Europe in general are dependent on low interest rates, which means that even a slight increase could ruin the economy. Even a 20% decline of the currency and an appreciation of the competitive position did not help the U.K., one of the reasons being that around half of country’s wealth is concentrated in its capital.
“My problem with the UK is we are very dependent on short rates remaining low. That applies to the rest of Europe as well. Any moves in interest rates upwards would be felt very severely through the system. It means that the risk for continental Europe is that the only way that we pay down the debt is with cash flow,” Odey stated.
His thoughts on the Federal Reserve are of particular interest:
“Up until March of this year, everything was going according to plan. The bond market was quiescent and had been put to sleep, essentially. The last bit Bernanke had to address was negative equity in the housing market. After all, the problem with America is it had marked property to market but, in marking it to market, a 50% fall in house prices meant most people had negative equity in their houses. How could you get a house-building boom going, even if it was long overdue, if you couldn’t provide the equity?”
The whole transcript of Odey’s speech can be accessed by following the link.