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Equity Markets on Life Support, Stay Hedged: Hermitage CEO

Loose monetary policy in both the U.S. and Europe has kept global equity markets on “life support,” says Bill Browder, CEO of London-based hedge fund Hermitage Capital. He believes current policies are unsustainable and investors should avoid long equity positions and remain fully hedged.

Traders work on the floor of the New York Stock Exchange
Getty Images
Traders work on the floor of the New York Stock Exchange

“I don’t trust where this world is going. I don’t want to be long equities in this world…(this time last year) We put on a fully hedged portfolio, which meant that every long position we had was matched by a short position…it saved me 20-30 percent,” Browder told CNBC on the sidelines of the World Economic Forum in Davos.

The European Central Bank’s recent move to pump half a trillion euros into the banking sector and the Federal Reserve’s decision to keep interest rates near zero through 2014, indicate that central bankers believe there is an “emergency” on, he said.

“Everybody has kept interest rates at zero percent when they should probably be at five or six percent. The world’s on life support right now,” he said.

Browder says the improvement in recent economic data out of the United States is a result of the Federal Reserve’s policies and not a reflection of improving economic fundamentals.

“When they unplug that life support, do you want to own something that has an artificial value? I say to myself I’m very happy to be entirely hedged,” Browder said.

While recent measures from central banks are helping prop up developed economies, Browder says there could come a time where the “the life support machine” will cause more problems than fixing it.

“It is no mystery that when you print money it causes inflation and it’s also no mystery that the inflation statistics we see right now are different to the ones we actually experience as consumers.”