One of our favorite hedge fund managers, Hugh Hendry, a perpetual contrarian and manager of the Eclectica fund, came out with his latest letter to investors and, surprise, surprise, he remains bearish on the BRICS (especially China), commodities and Japan… and he also adds Eike Batista to his list. Remember, Hendry is the guy who’s fund was up an astonishing 52% in 2011 as the world was falling apart.

Hence, here we are again, listening to his words very carefully. Main points of his letter below (highlights are ours):

“We are, as a result, long the debt saddled west and short the vastly over vaunted and over owned BRICs... There is a near consensus that China will supplant America this decade. We do not believe this. We are more bullish on US growth than most. The momentous nature of recent advances in shale oil and gas extraction and America’s acceptance of the unpleasantness of debt and labour price restructuring looks to us as if it is creating yet another historic turning point… We are also more pessimistic on Chinese growth than ever. This makes us bearish on most Asian stocks, bearish on industrial commodity prices, interested in some US stocks, a seller of high variance equities and deeply concerned that Japan could become the focal point of the next global leg down.”

But not only that, he is bearish on everything Eike Batista. Why? Because of Eike’s “This Time is Different” and “I will be the richest on Earth” attitude, which he sees as signs of a top and the so-called “new paradigm”. He goes on:

“It also means that when we look at where the next market crisis will come from we should be looking to China… it seems to me that with all the problems I have outlined in China, something bigger is to hand in terms of investments. Something that is not well looked at – a new pricing regime as the world fumbles to imagine a world less reliant on China… but have their portfolios become dangerously out of sync with changes on the ground? Consider the case of the Brazilian Eike Batista, and his very, very ambitious iron ore and port projects. A devastating combination of charisma, the enigma of China’s insatiable appetite for commodities and G7 pension fund money will, so he believes, make him the world’s richest man in three or four years time:

[Eike Batista said] “Just look at the assets. Jesus, by 2015 we will be making $10bn. Between 2015 and 2020 that will double or triple. And those are discounted numbers…””

But this is hardly a given: prices and marginal trends are telling a different story. Whisper quietly, but the bull market may have passed. Those taking bets on several more years of rapid Chinese investment growth are vulnerable to big losses.”


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