Michael Platt: What’s Going On Now Is Significantly Worse Than 2008

Michael Platt, the founder of the $30 billion hedge fund BlueCrest Capital Management, spoke to Bloomberg TV today and shared his views on the European debt, banks, and opportunities on Bloomberg Television.

According to Platt, most European banks would be insolvent if their assets had to be marked to market value like hedge funds. He is “radically concerned” about counterparty risk, and that the outlook for 2012 is “significantly worse than 2008.”

On Europe’s sovereign debt crisis:

“The level of concern of what we have about what is going on in Europe is absolutely huge.  When you evidence all over the markets that they are pricing for the potential of the eurozone break up, it is contrary to what everything is set by policy makers and by central bankers. We distill it down essential fact that we continue to focus on at BlueCrest Capital Management – if you look at the debt of Italy at 120% of GDP, which is increasing at a real rate of 5%, and if you look at the GDP, which now is forecast next year to be declining, arithmetically their debt is going to blow up.  And we don’t see anything happening at the policy level that gives us any indication that there’s anything that’s going to convert this situation from where it is now to a much more substantial and real crisis in the future.”

On whether we’ll see a repeat of the 2008 credit crunch and whether those that hold illiquid assets will get crushed:

“That’s what I think, yes.  I think so.  In my opinion, what’s going on now is significantly worse than 2008…The European debt situation is fundamentally completely unstable.  The process of refinancing your debt with a real rate of 5 when you have negative GDP growth, and we are heading into a recession in Europe, arithmetically can turn all of the countries in Europe, given enough time, into Greece.”

On whether he’s afraid of taking risk right now:

“Absolutely, the main thing is driving our decision about where to lend money or where to place our funds under management, the vast majority is dollars which we keep in two-year notes.  We have a chunk of euros, which we keep in German two-year paper.  We’re not interested in taking any peripheral debt risk at all and we’re not interested in taking any bank credit risk right now.”

On making money in a crisis:

“The most important thing to remember about crises is you do not make your money going into the crisis.  When you go into a crisis such as 2008, markets trade against positions. People have positions on and people need to get risk off.  All the things that people thought were a good idea start going into reverse.  The big money you make in trading is more in the aftermath of the crisis.  In 2009 we made 60% with no down months on our master fund.”

On where he’s seeing investment opportunities:

“I think the major opportunities will come post the blow up.  I think for the time being you want to keep it quite simple.  You do not want to take any credit risk.  I think volatility in certain markets is very underpriced compared to what’s potentially about to happen.  I think if we go into a crisis scenario, things like German bunds could be more expensive than they are right now.  And I think as the crisis intensifies through the process of governments refinancing and deficits becoming more unstable and growth deteriorating in particular, I think those kinds of trades will play out in the market and be profitable.”

(Click here to see the full report from ZeroHedge)