One of the UK’s most successful hedge fund managers has warned that the world is on the cusp of an economic downturn that will be “remembered in a hundred years”.
Crispin Odey, the founder of London-based Odey Asset Management, told clients in a letter that he expects major economies to enter a recession that will “devastate” stock markets. He predicted that the European Central Bank’s €1.1tn (£730bn) bond-buying programme announced last week will disappoint markets and will not stave off a slump.
He concluded: “We are in the first stage of this downturn. It is too early to see what will happen – a change of this magnitude means the darkness and mist is very great. This down cycle is likely to be remembered in a hundred years.”
Warning that central banks have run out of financial firepower, he added: “We used all our monetary firepower to avoid the first downturn in 2007-09, so we are really at a dangerous point. If economic activity far from picks up, but falters, then there will be a painful round of debt default.”
He pointed to slowing growth in China alongside falling commodity prices and incomes in emerging markets. “The shorting opportunity looks as great as it was in 07/09.”
Odey also predicts that markets will take more note of politics this year. “This time around, the problem we have as well is that politics will start to rear its head and we are left to deal with politicians who are increasingly critical of the capitalist system’s ability to allocate capital,” he said.
The €306m (£228m) Odey Pan European fund, for which the letter was written, has achieved a rate of return of 15% in the year to 23 January.