In every disaster movie there is one character who exudes calm and an air of common sense whilst all around him are losing theirs. In the rolling car crash that is the European financial crisis, one such beacon of rational thought is Kyle Bass of Hayman Capital Management. You may wonder, as I do on a daily basis, why it takes a fund manager all the way over in Dallas to articulate the massive issues at stake for Europe and the Global economy when so few of our leaders seem able to. Perhaps, some simply don't understand the enormity of the problems we face or more probably, lack the moral and political courage to face them.
In his latest newsletter, (linked with permission), Mr Bass lays out the challenge in simple and straight forward terms. For students of economics, taxpayers and market professionals alike it's well worth taking the trouble to read.
His blunt assessment that, "We are saddled with the largest accumulation of peacetime debts without any playbook for what happens next," ought to leave most people shifting restlessly in their chairs. Mr Bass, now getting into his stride moves on to say, with a bluntness that would have great resonance with most of our grandmothers,
"Given the enormity of the debt burdens of the PIIIGSBF, (Portugal, Italy, Ireland, Iceland, Greece, Spain, Belgium and France) coupled with those of Japan (and at some point the US), lending schemes designed to lend more into an intractable debt problem are destined to fail miserably. There is no savior large enough with a magical pool of capital to stave off this unfortunate conclusion to the global debt super cycle. We think hard defaults are imminent."
"If we are correct regarding our hypothesis on the outcome of the debt crisis, the world will have it social fabric ruffled or even torn for a period of time. Be mindful that we are not talking about the end of the world as we know it; we are simply saying that it will be a different and slightly more difficult place to live in for those of us in the developed and indebted West."
Now, moving the family down to the basement with candles, tinned food and bottled water might be something of an over reaction but then again................. you can never be too prepared.