Britain is heading for a recession. No ifs. No buts. No maybes. It is ‘inevitable’, says top hedge fund manager Crispin Odey. It sounds like another attack on Brexit from a so-called ‘Bremoaner’. But Odey himself voted ‘Out’ on June 23 and has no regrets.
For while Odey believes we are in for an economic storm and that Brexit will make it worse – at least in the short term – the gains are far more worthwhile.
Odey likes to see himself as a man without illusions who is most comfortable facing unpalatable truths. ‘These are not things that I wish for,’ says Odey. ‘It is just how I see it.’
Power point: Hedge fund boss Crispin Odey at his art-adorned office in Mayfair
Britain, he believes, is facing a similar situation to the late 1970s – low productivity, rising inflation and the only true cure will be a recession that will clear out the deadwood.
‘One thing the hedge fund business allows you to do is look at the world and not be driven by hope. You can look and say, “This could go wrong”, rather than thinking, “I hope it does not go wrong”.’
Odey’s group handles about £10billion worth of assets for major institutions and super-rich private individuals. The 58-year-old and his family are estimated to be worth about £900million. He earned £16million last year alone and has some of the trappings to match – with a home in Chelsea and a country retreat in the Forest of Dean.
There has also been some notorious personal extravagance, including a £150,000 chicken house at his Gloucester home, designed to look like a Palladian villa and dubbed by critics as ‘Cluckingham Palace’.
Sitting in an art-adorned conference room in his Mayfair offices, Odey is jolly, avuncular and eager to explain why he thinks we face recession, but also why it may be the only way to bring long-lasting growth back to Britain.
Critic: Odey believes the policy of quantitative easing introduced by the Bank of England during the financial crisis in 2008 has now gone on too long
Odey traces the looming recession to long-term forces of globalisation, easy credit, falling productivity in the UK economy and the policy of quantitative easing, in which the Bank of England and other central banks have pumped money into their economies.
This has created a deep imbalance and has artificially held off the inevitable crunch which he now regards as long overdue – or as he puts it: ‘We have been sitting in God’s waiting room for some time now.
‘Globalisation was not good for real wages in the West. But it provided credit access to everyone and we got low inflation and low interest rates. People may not have liked globalisation, but they liked what it did to their house prices.’
Like Theresa May, Odey believes the policy of quantitative easing introduced by the Bank of England during the financial crisis in 2008 has now gone on too long and has kept up those asset prices – helping the wealthy but not so much the man in the street. ‘We avoided a recession [in 2009]. That was thanks to QE. The problem is that seven years later we are still doing this.’
He illustrates his argument by grabbing loose papers nearby, jotting down figures and sketching graphs, to make the case that QE has artificially kept asset prices high but has failed to improve productivity in the real economy.
‘The UK looks like it leads this particular story. But it is a global story – this affects the whole of the world – but it happens to be the UK where the combination of us voting for Brexit and the uncertainty that creates for investors means that the currency falls.
‘Inflation then comes through much more strongly – the underlying inflation rate is rising probably towards 4 per cent,’ he says. Then he delivers the truly painful prediction: ‘Employers are not going to respond to this by giving wage increases.’
‘If the inflation rate is higher and people’s wages are not going to grow as fast as their costs, there is going to be a recession.’
House prices: Odin believes recession will come with all its usual symptoms – rising unemployment and falling asset prices including house prices
Recession, he believes, will come with all its usual symptoms. Rising unemployment and falling asset prices including house prices. Unwelcome but perhaps necessary is his view. ‘What a recession will do is like breaking ground. It will mean some companies will go to the wall but others, the ones that survive, will be that much stronger.
‘They will start to employ people and they will employ young people because they are cheaper and the truth is they will adopt the technology the old cannot even understand. Then actually all of your productivity problems go out of the window.’
He quotes the famous phrase of the early 20th Century economist Joseph Schumpeter – ‘creative destruction’.
So, given his predictions of storm clouds, what does he make of the economic news which, while mixed, has been remarkably positive at the headline rate.
‘The Bank of England got this entirely wrong,’ says Odey. ‘They thought there would be a recession immediately, but in fact the fall in the currency has meant people have gone and bought things before they went up in price, so you have a boom. The real problem comes early into next year when companies order new goods and you find they are 20 per cent more than you expected.’
It seems that for Odey, Brexit is having an effect, but it is not the real force behind the economy. Odey said he favoured Brexit primarily as a constitutional issue – to bring power back to the UK Parliament. In this regard, unlike some Brexiters, he supports the High Court ruling last week which could give Parliament a vote on triggering Article 50.
Naturally, he expects MPs to respect the referendum decision. But he has no doubt it will hasten recession – but only hasten it. Since Britain, and indeed much of the West is heading for a slump, Brexit just means we may enter it first, but that may even be an advantage.
‘We are in a world much more like the 1970s than the last 26 years, when we last had a real recession.’
The comparison with the 1970s leads to a tempting analogy – that Theresa May could be the new Thatcher. While Odey makes no direct comparison between the two leaders, he gets very close, describing the painful transformation needed today to the painful times of the early 1980s.
And here he sees a key role for the Brexit story – providing the cover for hard political decisions.
Odin supports the High Court ruling last week which could give Parliament a vote on triggering Article 50. (Pictured: Lead claimant Gina Miller)
‘It is very hard to find politicians who are prepared to sell something difficult to the electorate. But now in a way they can. Theresa May can say, “I never voted for Brexit, you voted for Brexit.” So she can say, “I am afraid we are going to have recession, but this is going to lead to benefits coming out the other side.” ’
While that sounds like cynical advice to a politician, it is also what Odey believes to be true.
‘The good in Brexit is it gives us flexibility to deal with the problems that would be coming our way anyway,’ he says, adding that as long as Britain can secure global trade under the terms of the World Trade Organisation, we will thrive in the long run.
Taking a long-term view is of course central to Odey’s job. As well as being the founding partner of Odey Asset Management, he is the portfolio manager of some of its leading funds. Odey Asset Management however has had a turbulent year.
Last week, it was reported his flagship fund, Odey European Inc (managed by the boss himself), saw its assets under management shrink by 60 per cent from €1.1billion to €422million.
Many of its investments are based around Odey’s gloomy view, betting on rising gold, falling sterling and falling UK commercial property.
But nervous clients have been withdrawing money and the value of the fund’s investment has dropped 35 per cent this year.
It is a sharp contrast to the huge returns of some previous years including 30 per cent in 2012.
Odey is philosophical about the life of a hedge fund boss. ‘You have to be good at being in an uncomfortable place for a very long time. One has a very thick hide,’ he says.