Hedge Fund Manager Odey Turns Super Bear on QE

Renowned U.K. hedge fund manager Crispin Odey has warned of an impending global economic slowdown that will be remembered for a century, saying equity markets will be “devastated” despite central bank action aimed at propping up the global economy.

“The shorting opportunity looks as great as it was in 07/09”, the founder of Odey Asset Management wrote in his latest report to investors, seen by MoneyBeat.

“We used all our monetary firepower to avoid the first downturn in 2007-09, so we are really at a dangerous point to try to counter the effects of a slowing China, falling commodities and EM incomes,” he wrote.

On Thursday the European Central Bank announced a larger-than-expected quantitative easing program to begin in March, but Mr. Odey said that “faced with a deflationary bust, monetary policy will prove to be but pushing on a string”. Odey’s report was received by investors just after Thursday's ECB announcement.

Odey is particularly bearish on equities, commodity-related sectors, international consumer companies and “overexposed” fund management companies.

“If economic activity far from picks up, but falters, then there will be a painful round of debt default,” he wrote. “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.”

Mr. Odey's flagship €2.4 billion ($2.7 billion) long/short European equities hedge fund returned 11.7% in December, leaving it up 5.5% for 2014 despite sitting on losses of over 10% as recently as October, according to a previous investor letter.

The fund said a strong performance in active currencies helped drive the returns, with AUD/USD and USD/ZAR posting the biggest gains, while its short equity book returned 4.9%.

A spokesperson for Odey did not respond to requests for comment.