Zak Mir on old Harrovians, old Etonians and Crispin Odey!

I used to keep rather quiet about having gone to Harrow School. The first reason is that I also had a place at Eton – and was not sent there purely because Harrow was nearer to home. The second is that my parents spent the equivalent of £30,000 a year for five years on this “education”, and you may have noticed my grammar is rather unique. However, an hour listening to Crispin Odey on Tuesday evening at the Old Harrovian Entrepreneur & Investors Club may have counterbalanced a tale of woe at the school between 1980 and 1984. It helps that the hedge fund hero is an ebullient and candid individual and was happy to spill the beans regarding his own career path. This currently consists of having £12bn under management, and Odey is clearly looking for more…

In fact, everything started rather small and inauspiciously in August 1982 when his City career began. He revealed that at the time most in the Square Mile were of the opinion that the stock market was doomed. Perhaps not too surprisingly that exact month marked the start of the great 1980s bull run. We are reminded once more that normally even the “experts” do not have a clue with regards to the financial markets. Luckily for most of the stockbroking fraternity, at the time, being clueless was not an impediment to speculation as it was, horror of horrors, based almost exclusively on insider information rather than having to read the tea leaves of technical analysis or even the real pain of reading a company’s accounts!

But the real fun for Odey began on the 19^th September 1991 – a date which he pointed out could have been a positive omen in terms of being a palindrome. He certainly hit the ground running with George Soros on board as an investor and a 28% return in the first year. This, quite rightly, he was very chuffed about until a meeting with Soros’s right hand man Stanley Druckenmiller who revealed an 81% annual gain! Nevertheless, as you might expect, the Odey journey was not all plain sailing. In the early 1990s he bet long on bonds only to find that interest rates doubled – and the bulk of his investors headed for the hills. Even the investor who had put in money after confirming with an astrologer that Crispin Odey was going to be a very rich man also headed for the exit when the fund was down 44%. Ironically, this proved to be the low point…

Moving forward to recent years and of course the real story for the hedge fund brigade has been the financial crisis and the devil it spawned – QE. I felt that Mr Odey was rather diplomatic, even philosophical regarding QE and which I feel should never have been started. This is an objection both on ‘moral hazard’ grounds, and on the basis that it is a policy which has no proven happy exit strategy – rather like a plane with no landing gear.

However, Odey did acknowledge the positive effects in terms of keeping the consumer ticking over. In the UK this may be just until the Government’s finances finally and irreversibly implode given that its borrowing ratio to GDP per annum is something even the worst of the PIIGS do not have. The danger is that when the inevitable inflationary bubble arrives and interest rates have to be raised sharply, both the UK and its consumers will meet a sticky end. The implication this is that this is the year to be short of assets, with one of the favoured candidates being Sterling. On the stocks front it is interesting that one of my shorts of the year – Debenhams (DEB) was singled out as a sell by Odey on the basis that the rent it pays and the revenues it now earns are close to being the same. Rental values and property values may be excessive, but they may not fall fast enough to save the department store.

Finally, a couple of points worth noting. There has been a “brain” drain of analysts from the likes of Goldman Sachs to the hedge funds. Odey believes in paying them well. There are currently more than 20 analysts being paid between £10m – £12m, just a tad more than the editor of Spreadbet Magazine. One final point is that our hero also looks at price action to determine the psychology of the market – the higher low is a key weapon in this respect – something that may finally be in evidence with our very own dear founder’s nemesis – that’s right, Kazakhmys!!

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