Hugh Hendry: “If China Devalues By 20% The World Is Over, Everything Hits A Wall”

Once upon a time Hugh Hendry was one of the world’s most prominent financial skeptics, arguing with anyone who would listen that the status quo is doomed and that central planning will never work.

Most famously, back in 2010 during a BBC round table discussion with Jeffrey Sachs and Gillian Tett when discussing Europe’s crashing experiment with the single currency, he said that we should “purge this system of its rottenness. Let’s take on a recession. It’s going to be tough, people are gonna lose their jobs. They are going to lose their jobs anyway. We can spread this over 20 years, or we can get rid of it over 3 years” before concluding “I recommend you panic.”

Ultimately everyone did panic, which led to the single biggest episode of global QE and negative rates ever seen, resulting in ever louder speculation even among the most “serious” people that central bankers are now powerless.

But perhaps most notably, Hendry was one of the biggest China bears, certain that the country’s massive overcapacity, insolvency and bad debt problems would result in disaster (back then China only had about 200% debt/GDP, it has since risen to over 350%). His Chinese skepticism led to his fund generating a 40% profit by late 2011.

And then after a poor two year performance spell, Hendry had a historic burnout and threw in the towel on bearishness, infamously saying he can no longer “look at himself in the mirror”:

“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.”

He proceeded to buy momentum stocks and 3D printer companies.

Fast forward to the present, when countless hedge funds – key among them Kyle Bass’ Hayman Capital and Mark Hart’s Corriente – have become China megabears, expecting the country’s financial collapse and trading it by shorting the Yuan, expecting a massive Yuan devaluation.