“this credit cycle’s final trade”

via Eric Peters of Peters Capital Group:

“Should have known what to expect,” he said, laughing at his own idiocy. “When you move into a house filled with 19yr old derelict degenerates, there’s no going to sleep early.” But refusing to cut and run, he traded out of the position. “I figured if these morons were going to keep me up till 2am listening to Pearl Jam, they were going have to pay.” So he started a casino in the frat-house basement. That stank of stale beer and Skoal. But quickly overflowed with drunken gamblers, baseball caps turned backwards, drinking, dipping, crowded around blackjack tables. And indeed, they paid. Consistently. Reliably. He emerged from that basement stench to get his diploma. Tossed his cap. And headed to the ultimate casino. Wealthier. Wiser. “Built my entire business around buying carry, you’ll never meet someone who loves it more than me,” he said. I politely refused to take the other side. “So the fact that I can’t bring myself to buy this stuff anymore is very bad news for other guys.” But calling the end of a bull market is rather different from calling the beginning of a bear. The last great credit debacle in the US was the S&L crisis. Which was followed by an 8yr recovery. The 2008/09 crisis was far more severe and will be followed by a much longer, lackluster recovery. That’s how economies recover from financial crises – and we’re only 5yrs into this one. “We’re approaching an infection point, the past 5yrs have been fantastic for financial assets, for carry, but not great for the real economy, and that relationship is now in the process of reversing.” So he’s jumping on this credit cycle’s final trade. Buying every illiquid thing left, securitizing the crap, marking it up, creating new carry instruments. “To sell to some drunk idiots.” 

Source:

wknd notes