Odey expects banks to fall – so buys a bank…

August 15, 2008

Crispin Odey is a hedge fund manager worth listening to.

The founder of Odey Asset Management just bagged an annual pay packet of 27.9 million pounds, thanks to his bets that bank stocks will fall and commodities will rise. Both have worked nicely over the past year – banks have been hammered since the Odey recently bought shares in HBOScredit crisis began last summer while food prices have soared.

So when Odey says banks and property stocks could fall by a further 30 percent before looking good value, he probably knows what he’s talking about. He believes that losses at HBOS, for instance, could well be worse than the market, even in its gloomy state, is expecting.

One of the main factors, he says, could be loans made before the credit crisis began when borrowing was easy. These give the banks less power to step in and get their hands on a business, and hence what is left of their money, when it runs into financial difficulty.

So if banks shares are going to fall, why has Odey recently bought shares in HBOS?

Well it appears he doesn’t quite trust other investors to do their homework properly.

He believes that bank stocks are likely to rise from time to time, as they recently did, because on traditional measures they look very cheap and investors won’t be able to resist buying them, even if that value is just an illusion.

Hedge funds suffered badly in July when bank stocks rose and commodities fell – something that caught out Odey too. But if you can take advantage of short-term opportunities, then it goes to show the stock market’s wild moves this year offer plenty of chances to make money.

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Get in while it is cheap, i Guess is his motto