According to RealVision, he’s one of the greatest investors you’ve never heard of. According to us, he ran what was (formerly) the world’s most bearish hedge fund, although at the end of 2016, after suffering substantial losses, he capitulated and went flat, after closing much of his short book.
To be sure, Russell Clark, and his Horseman Global (which after phenomenal returns for much in the post-crisis period, closed 2016 with a thud, dropping 24% and down another 8% YTD, isn’t a household name. But in investment circles, he’s known as one of the world’s most aggresive, and better, short sellers.
In a rare camera appearance, Russell Clark sat down with Real Vision TV’s Raoul Pal in what has been dubbed as “one of RealVision’s most requested interviews ever”, to discuss investing and share his approach to markets.
In one part of the interview, Clark says that one reason for his success is his focus on currencies. While for many investors the risk and reward of currencies is an afterthought, it forms the base of Clark’s investment worldview. “What we try and do is invert the process,” Clark says. “So, we’d put currencies at the beginning of the investment process rather than at the end. And that’s really been the heart of how I look at things…”
Next, as we conveniently laid out just yesterday in “Why Horseman Global Is Aggressively Shorting Shale“, Clark touches on his short shale thesis, telling Pal that shale oil is “an industry that shouldn’t exist.”
As we discussed yesterday, Clark has once again emerged from his recent “neutral” position and is shorting shale oil stocks. According to Clark, shale oil companies “never make any money,” and the industry only exists because borrowing costs are so low.
He compares U.S. shale today to China’s steel industry in 2012 – just before it crashed. For those who missed it, here are more details on his latest short bet from his latest letter to Horseman investors:
I had shorted shale producers and the related MLP stocks before, and I knew there was something wrong with the industry, but I failed to find the trigger for the US shale industry to fail. And like most other investors I was continually swayed by the statements from the US shale drillers that they have managed to cut breakeven prices even further. However, I have taken a closer look at the data from EIA and from the company presentations. The rising decline rates of major US shale basins, and the increasing incidents of frac hits (also a cause of rising decline rates) have convinced me that US shale producers are not only losing competitiveness against other oil drillers, but they will find it hard to make money. If US rates continue to stay low, then it is possible that the high yield markets may continue to supply these drillers with capital, but I think that this is unlikely. More likely is that at some point debt investors start to worry that they will not get their capital back and cut lending to the industry. Even a small reduction in capital, would likely lead to a steep fall in US oil production. If new drilling stopped today, daily US oil production would fall by 350 thousand barrels a day over the next month (Source: EIA).
What I also find extraordinary, is that it seems to me shale drilling is a very unprofitable industry, and becoming more so. And yet, many businesses in the US have expended large amounts of capital on the basis that US oil will always be cheap and plentiful. I am thinking of pipelines, refineries, LNG exporters, chemical plants to name the most obvious. Even more amazing is that other oil sources have become more cost competitive but have been starved of resources. If US oil production declines, the rest of the world will struggle to increase output. An oil squeeze looks more likely to me. A broader commodity squeeze also looks likely to me.
More on Clark’s latest shale bet in the excerpt below.
Among the other topics covered, is Clark’s take on how investing relates to poker… including why a seemingly inferior hand can actually make much more money than a hidden pair of aces.
The full interview can be found here, along with a free 7 day trial.
via http://ift.tt/2uqwMz0 Tyler Durden