Skip navigation

Current DateTime: 02:14:50 09 Nov 2009
LinksList Documentid: 24355697

FEATURED QUIZZES


Current DateTime: 02:14:50 09 Nov 2009
LinksList Documentid: 33793611

Current DateTime: 02:14:50 09 Nov 2009
LinksList Documentid: 24890560
  • Winterizing Your Portfolio

      If 2009 was the winter of our discontent, will 2010 be a winter wonderland for investors? A lot depends on the recovery—or lack thereof.

  • Investor's Guide to Real Estate

      Some even say the long-awaited recovery is here. Regardless, buyers and sellers alike can profit from our guide.

  • Alternative Investing

      Stocks and bonds? Sure. But it's a big world out there for investors.

powered by digg
By: CNBC.com | 30 Jun 2009 | 08:05 AM ET
Text Size

Fears about inflation and hyperinflation could create another economic downturn, bigger than the one the world went through, Hugh Hendry, chief investment officer at hedge fund Eclectica, told CNBC Tuesday.

Dollar and Euro
The stock markets are due for a correction after having risen dramatically this year, but this is not likely to come in the summer and another rally is possible, Hendry, who said he was remaining risk-adverse this year, told "Squawk Box Europe."

"We have a huge intellectual conviction… that this is a more profound downturn that we're experiencing and markets will be under pressure," Hendry said.

"People get more get more concerned about government debt… and it sows the seeds of its own destruction," Hendry said. "We're actually tightening the screw, we make monetary policy tighter and tighter."

Long-term yields on government bonds have been rising, as investors fear central banks, especially in the US and the UK, will have to absorb excess liquidity from the system and raise interest rates to fend off inflation once an economic recovery takes hold.

"I think this paranoia today that inflation is happening today I think it puts in place a motion for a decline in the economy," Hendry said. "I think they're not printing enough money… with regards to the wealth destruction that has been happening over the past 18 months."

- Watch the full Hugh Hendry interview here >>>

"We raised interest rates and actually we killed the golden goose," he added.

Stock Market Correction

A correction in the stock market is likely, but it will not come over the summer, and the S&P 500 index may even hit 1,000 before the downturn, according to Hendry, who admitted he is not stepping in to catch the tail of the rally.

"It's kind of fun watching it from the sidelines, I must say I'm not participating," he said. "My flower opens in the winter, not in the summer."

There is a tight correlation between the oil price and the Chinese currency, the yuan, with oil prices rising as the yuan was strengthening, Hendry said. This is because Chinese speculators had borrowed in dollars as the yuan firmed, and all that liquidity was thrown into the oil market last year.

"The one non-confirmation in the world is that, since July, the Chinese currency has done nothing, it was flat vis-à-vis the dollar," he added.

Hendry said he still prefers conventional government bonds, and admitted they were the cause his fund was 3 to 4 percent down on the year. But, he added, government bonds were down 20 percent – although he doesn't think they will end the year like this.

China and other countries with a current account surplus are not as safe as they seem at first glance, because their economies are still hugely dependent on exports to the US, which is still "down on its luck," he said.

"If that's the case, the last place you want to be is the surplus countries," Hendry said.

© 2009 CNBC.com
Tools:
Print EmailAdd This share icon
  • digg share

CNBC HIGHLIGHTS

  • Do free market libertarians really believe what they say about ethics and shareholder value? The Big Money takes a look.
  • Jim Cramer
  • Cramer did the research and found eight stocks that lead the pack. Read on to get his top picks.
  • On the anniversary of the fall of the Berlin Wall, many in the former Eastern Bloc recall communism fondly.
  • Gavel
  • Software, biotech firms, even banks are watching a particular Supreme Court argument today.
  • From politicians to CEOs to companies, here's your chance to vote for the winners and losers of 2009.
  • A new sinister Internet viruses can turn you into an unsuspecting collector of child pornography.
ADD COMMENTS
Remaining characters


Current DateTime: 01:37:41 09 Nov 2009
LinksList Documentid: 29778428

Current DateTime: 08:52:06 09 Nov 2009
LinksList Documentid: 29779196

Current DateTime: 12:21:54 09 Nov 2009
LinksList Documentid: 29779199

Current DateTime: 08:52:07 09 Nov 2009
LinksList Documentid: 29779198
  Data is a real-time snapshot  *Data is delayed at least 15 minutes
Global Business and Financial News, Stock Quotes, and Market Data and Analysis

© 2009 CNBC, Inc.  All Rights Reserved.
A Division of NBC Universal
Thomson ReutersThomson Reuters