Unlike the previous letter, this one actually is worth your time. Kyle Bass, the one man Spartan who took on the Xerxian hordes of sub-prime with his Hayman Capital (which has returned 6% in 2008, 9% in 2009 and is up 340% since inception), and won, shares some very valuable insight. Must Read.
The world needs a “do‐over” and [a global default] would be the cleanest way to rebuilding the world's financial system. As much as I would like to think there is another path to salvation that does not include enormous pain, there is just no other way when you look at all of the numbers.
p.2: Alan Greenspan said it best when he wrote Gold and Economic Freedom in 1966
p.3-1: It is an interesting point to ponder – the United States has been operating in asystem of limitless credit creation for ONLY 38 years.
p.3-2: There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.
p.3-3: The Bad News? The Rest of the World Looks Worse
p.4: the scorecard so far reflects a relatively mild downturn compared to the rest of the world.
p.9: the results are staggeringand frightening.
p.11-1: Our work suggested that there could be a "cluster" of government defaults over the next three years (or possibly sooner).
p.11-2: we find that serial default is a nearly universal phenomenon[.]
p.12: The fact that he thinks stealing money from the savers in his economy and confiscating itthrough the hidden tax of inflation/currency debasement should scare everyone.
p.13: To be clear, we believe that the U.S. (and in fact, the world) is in an ongoing debt deflationary spiral that will likely continue for some time (possibly years). The rampant printing of currencies around the globe is not, in our opinion, likely to be immediately “inflationary” (in the common understanding of the term) as leverage comes out of the private sector and asset values continue to decline. The greater concern is the potential inflationary time bomb that grows as governments continue to borrow, print and “stimulate.” What happens to inflation when the velocity of money goes from zero to 100?
p.14: default - and - 50%
p.18-1: I am sure I will upset Wall Street firms and insurance companies and all of the other participants that like the old system of posting no collateral and having the marketplace opaque so they could fleece the unwary participants. It is time to have an “Adult Skate” only from now on.
p.18-2: The problem is that they have already taken all of the “suckers'” money in the securitization marketplace.
p.19-1: For your wealth, you must think about the enormity of this problem around the world, and what the likely governmental responses will be. I believe they only have two paths to walk down eventually.
p.19-2: There will be a time to get bullish (my guess is many years from now).