Friday, December 16, 2011

Interview With Michael Platt

A very interesting video about the implications of Europe's crisis - interview with Michael Platt, founder of one of the largest asset managers in the world, BlueCrest Capital Management. It's a bit long - 15 mins, but very well worth watching. In case you are short on time, I have summarized the key points, as I understood.

Disclaimers :
1. This is obviously NOT an investment advice.
2. I do not know anything about this person, apart from what I have learned from the interview. So I am taking it at its face value.

Why I think it's worth watching :
1. He seems like a very smart guy. Apparently manages about $30 billion in his hedge funds, which is huge. Claims to have generated positive and hefty returns over last many years. Let's say all that is true.
2. He is NOT shouting from the roof, crying Armageddon. He sees a high probability of a significant crisis due to European debt situation. He is calmly talking about his viewpoints, and his strategies.

Key points he is making :
1. He is worried about the crisis. So he has all his money in the safest and liquidest instruments : short term US and German government debts.
2. No matter what the policy makers are saying, Euro break up is being priced in for, in options and futures markets.
3. Math is against Europe. Example : Italy's debt is already 120% of their GDP. GDP is declining and debt is growing at 5%. Arithmetically, this will blow up.
4. There is no growth to get Europe out of this. Austerity makes it worse. And their is no willingness to transfer money across boundaries to ease the burden.
5. Most of the European banks are now insolvent.
6. As an investor, you do not make money by going into a crisis. You make money in the aftermath of the crisis.
7. Things will get worse in 2012. What's going on is significantly worse than 2008.
8. He thinks that bold solutions - like ECB printing, a fiscal union etc - will solve the crisis. (This is the where I disagree. Printing money does not solve anything. It just changes the problem from high debt to to high inflation. And an European fiscal union is probably a non-starter.)

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