Friday, February 18, 2011

There were forty-five gardeners from Greece. 
They said, "The weeds in the garden would decrease!" 
They made quite an array,
And were very well paid. 
But, it all turned out to be a big fleece. 

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Hedge Fund Manager Kyle Bass has a February investor letter that is amusing and insightful:

...my host informed me of an audit recently done on one of the largest hospitals in Athens.  This hospital was hemorrhaging Euros, and the Greek government is required to make up the deficit with capital injections.  Officials began an inquiry into these losses and found 45 gardeners on staff at the hospital.  The most interesting fact about the hospital was that it did not have a garden.  The corruption is endemic in the society, and it is no wonder that Greece has been a serial defaulter throughout history (91 aggregate years in the last 182 – or approximately half the time).  It is unfortunate that it is about to happen once again.  Although – as we have previously stated, restructuring is actually the gateway to renewed growth and prosperity over time – we have identified at least two assets that we would like to own in Greece in a post-restructuring environment...

His closing thought:

Does Debt Matter? 

We spend a lot of time thinking about and discussing systemic risk.  This is not because we are natural pessimists; rather, we believe that many investors cannot see the forest for the trees as they get caught up in the short?lived euphoria of the markets.  We ask ourselves, and urge you to ask yourself one simple question: Does debt matter?  It was excess leverage and credit growth that brought the global economy to its knees.  Since 2002, global credit has grown at an annualized rate of approximately 11%, while real GDP has grown approximately 4% over the same timeframe – credit growth has outstripped real GDP growth by an astounding 275%.  We believe that debt will matter like it has every time since the dawn of financial history.  Without a resolution of this global debt burden, systemic risk will fester and grow...