Crispin Odey, Hugh Hendry’s mentor and recently named one of the wealthiest hedge fund managers in Europe, updated his investment thesis at the Morningstar Investment Conference. Previously, he stated that although he agrees with the bearish points made by Dylan Grice, his view is the investment boom is in its infancy and that "history is quite clear that not until rates hit 6 percent do equities get frightened by inflationary pressures and that seems a million miles from here."
In developed markets, "we will not see any interest rate rise until wage inflation is well on the up. When it does come through, it will take us out like a flood." The real inflation “tsunami” will come when emerging markets post current account deficits, Odey said. Be invested in the west when that happens. This will lower the standard of living in the developed market, and do so quickly, but is not a concern in the near term. Odey believes the timing of the convergence between wages in the west vs emerging markets is key to thinking about the future.
The low cost labor advantage of emerging markets will erode over time, and Quantitative Easing accelerated that process. This is another bullish factor for the west, which is becoming more competitive despite emerging market resistance. Meanwhile, emerging markets are seeing inflation at four times developed market inflation, but inflation is not a problem so long as income is rising fast. Regarding European sovereign debt concerns, they are last year’s story, says Odey.
Odey favors long stocks, short bonds, Germany and banks. “I would buy banks now as margins have expanded enormously and the real point is, they are recovering," he said. Barclays (NYSE:BCS) was a name Odey mentioned specifically.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BCS over the next 72 hours.