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April 8, 2020, 11:18 a.m. EDT

Reduced dividends, softer growth and an economy haunted by zombie companies — that’s the postpandemic future seen by this Odey fund manager

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By Rupert Steiner


AFP via Getty Images
Greenwich Park in south London on April 4, 2020.

A portfolio manager at one of London’s leading hedge funds has warned of a future haunted by “a more Soviet outcome” from countries defending their economies against the coronavirus.

Tim Bond, partner and portfolio manager at Odey Asset Management, told MarketWatch: “Dog will no longer eat dog. Instead, all will run with the pack and for the pack” in a postrecession period characterized by reduced dividends and buybacks and softer growth.

Bond has examined how the financial world will look post-coronavirus in countries faced with the burden of hefty economic rescue packages.

‘An economic landscape haunted by zombie companies on permanent state aid support and national resources, allocated in accordance with whatever short-term objective might prolong a politician’s period in office.’

Tim Bond, Odey Asset Management

“It is, perhaps, possible to imagine a more Soviet outcome from the swing in the power pendulum,” he said. “An economic landscape haunted by zombie companies on permanent state aid support and national resources, allocated in accordance with whatever short-term objective might prolong a politician’s period in office.

“It is also plausible that global multinationals start to fragment into national parts, as a function of the requirement for nation-state resilience. That will reverse much of the oligopolization that has occurred over the past 30 years.”

Odey Asset Management, which has over $3 billion funds under management, was established in 1991 by billionaire Crispin Odey.

Read: Crispin Odey almost doubled profits before fresh performance slump

Bond thinks it is “vanishingly improbable” that everything goes back to normal once the virus is contained.

“Businesses have been caught overlevered and insufficiently reserved,” he said. “They will prioritize managing down debt burdens and building cash reserves in the wake of this crisis. Dividends and buybacks are going to fall much more than profits, both because of a higher corporate saving rate and because of government requirements.”

Households, having experienced how jobs and income can vanish literally overnight, will want to save, he said, adding: “When employment returns … we should expect that households will wish to save at a higher level than the precrisis average.”

This would mean people spending less, meaning the overall fiscal cost of the crisis would dent gross domestic product.

“These behavioral factors have led me to conclude,” he said, “that the postrecession period will be characterized by much softer growth than I had previously been thinking.

“This virus will most likely terminate the laissez-faire globalized economic model. Since this model had already stopped working long before the crisis started, that is no bad thing. We should remember that the prevailing economic system had entered a self-reinforcing negative loop of declining productivity, slowing trend growth, stagnating real living standards and rising inequality a good 15 years ago.

“The current crisis should therefore strongly reinforce the political pressure to ensure that economies are managed in a way that benefits most of their citizens.”

Read: Marshall Wace builds short bets against U.K. stocks, while Odey pockets millions

Bond thinks, counterintuitively, the world could see some positives for trend growth rates coming from a shift in power away from large business entities and back to the people, he said. The effects would come from de-globalized labor markets forcing higher rates of business investment over the long term, boosting productivity growth.

Bond said we should bear in mind a happier post-1945 outcome: “When the major economies experienced 25 years of exceptionally strong productivity and overall GDP growth, the benefits ... were disseminated very broadly across society.”

Barron’s on MarketWatch: What makes Japan’s fiscal package unique isn’t its size

Rupert Steiner is Barron's Group bureau chief for the Europe, Middle East and Africa region.

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