Hugh Hendry is one of the brightest, most entertaining of the long-standing bears and this week he’s grudgingly flipped bullish.
“I can no longer say I am bearish. When markets become parabolic, the people who exist within them are trend followers, because the guys who are qualitative have got taken out,”
“I have been prepared to underperform for the fun of being proved right when markets crash. But that could be in three-and-a-half-years’ time.”
“I cannot look at myself in the mirror; everything I have believed in I have had to reject. This environment only makes sense through the prism of trends.”
“I may be providing a public utility here, as the last bear to capitulate. You are well within your rights to say ‘sell’. The S&P 500 is up 30% over the past year: I wish I had thought this last year.”
“Crashing is the least of my concerns. I can deal with that, but I cannot risk my reputation because we are in this virtuous loop where the market is trending.”
Is this capitulation emblematic of a market top, as Hendry jests above? Is he doing his followers any favors by turning bullish now, after a 40% growth rate in the market’s sentiment toward stocks (expanded PE multiple) backed by very little in the way of earnings, sales or economic growth? Is there anything to gain by such a late-in-the-game admission?
And what if he’s actually been right all along about how at risk everything is? What if future events play out just as he’d been predicting over the last five years after he gives in? Can he turn back? Can he resurrect the old playbook in time should the crash begin shortly?
This game is really hard, even for the smartest guys who play it, guys like Hugh Hendry who can get almost all of the facts right and yet still reach a precisely incorrect conclusion. And if that can happen to him, think about how difficult the prediction game can be for the rest of us.
And here is Mr. Hendry in better times for the structural bears – his greatest hits from the 2011 almost-apocalyptic Eurodebt Crisis: