BLACK SWAN FUND: ‘There’s going to be chaos’

Friday, August 5, 2016
By Paul Martin

Rachael Levy
Aug. 5, 2016

London-based hedge fund 36 South Capital Advisors makes buckets of money when markets go haywire.

Jerry Haworth, the firm’s CEO, is ready, and waiting expectantly.

He spoke to Raoul Pal from Real Vision TV in an interview aired Friday, and said that central banks have been trying to dampen volatility by pumping money into the economy, but that in the end this will backfire.

“There’s going to be chaos,” he said.

Here’s the relevant bit from the interview (emphasis ours):

“The credit bubble has got so big that the participants can’t service their interests, and the government is one of the biggest participants, so they dragged the interest rate down to zero, and then they got trapped there. Even a homeless person can service a $1 billion loan at zero, so one wonders how it is going to end.

“It creates second order consequences where people say, ‘well, it’s free money,’ and that I think is eventually going to create the inflation. Now that you have the inflation, now you’ve got the dilemma: What do you do with interest rates? If interest rates follow suit, there’s going to be chaos. Equity markets, property markets, bond markets. Can you imagine the property market in London at [an interest rate of] 7%? Probably the price will drop 50% to 75%.”

Haworth has reason to say this. His fund primarily invests in long-dated options and is basically long volatility. That means that his fund benefits when volatility spikes and markets start moving wildly. He said that central banks right now are trying to reduce volatility, but that that would lead to a big spike in the future.

The Rest…HERE

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