:00:11. > :00:15.for January. It is now time for HARDtalk. They were very few
:00:15. > :00:20.investors have realised that the board was heading into financial
:00:20. > :00:26.turmoil. My guest on HARDtalk saw what was coming and made a fortune
:00:26. > :00:32.from it. First from America's sub Prime mortgages and then by betting
:00:32. > :00:42.that Greece would default. He reckons that France and Japan will
:00:42. > :00:43.
:00:43. > :00:53.have their economies collapse. It is the behaviour of speculators
:00:53. > :01:09.
:01:09. > :01:15.like him that leave us with the Welcome to HARDtalk. Thank you.
:01:15. > :01:24.What was it that made you realise in 2006 that we were heading for a
:01:24. > :01:29.crisis? The 2006 scenario was mostly a US phenomenon. If you took
:01:29. > :01:39.three steps back and looked at the housing scenario, everyone in the
:01:39. > :01:48.US realise that we had an enormous housing problem. Alan Greenspan, in
:01:48. > :01:54.2001, as at .com past was going into full-motion. Greenspan traded
:01:54. > :01:59.the dot com past for the housing boom. He lowered rates to 1%.
:01:59. > :02:09.Housing need the US had never gone down in value. He thought that was
:02:09. > :02:09.
:02:09. > :02:17.the way to come out of the dot com past. When he quits and handed the
:02:17. > :02:21.reins over, we started looking at the immediate its income sent home
:02:21. > :02:30.prices. Those two lines have moved in pure a parallel for the better
:02:30. > :02:37.part of 50 years. It makes logical sense. The affordability scale
:02:37. > :02:45.stays in check. When Greenspan started, again, trading .com asked
:02:45. > :02:50.for the housing boom, you saw a must-see of divergence between the
:02:50. > :02:58.media its home prices. Home prices took off and income has remained
:02:58. > :03:05.stable. You recognise that this is an overheating market? You describe
:03:05. > :03:08.it as a fat pits, lower rates, high reward scenario where we're going
:03:08. > :03:16.to be rides. You saw it as something you could make huge sums
:03:17. > :03:21.of money on? Yes, I know that sells a lot of books and television when
:03:21. > :03:27.you talk about nefarious speculators making a lot of money.
:03:27. > :03:31.It is important to understand that when you worry a fiduciary like me,
:03:31. > :03:36.and people invest their capital with me, number one I must not lose
:03:36. > :03:42.money and number two you must make greater risk adjustment returns. We
:03:42. > :03:51.had a global portfolio in 2006, we find equities and debts all over
:03:51. > :03:56.the world. These tapes to bets against the bottom Prime of a hedge
:03:56. > :04:03.funds and it cost me only 1% per year. I thought it was the best a
:04:03. > :04:06.symmetric head so I had ever seen in my life. If you look at the
:04:06. > :04:16.funds, we were very long in the fund, we are owned farms all around
:04:16. > :04:18.
:04:18. > :04:23.the world. This was ahead. This was a very a symmetric heads position.
:04:23. > :04:33.This is what we're talking about with the sovereign crisis. We have
:04:33. > :04:33.
:04:33. > :04:38.a large portfolio hour of investments in Europe in Japan.
:04:38. > :04:42.go through the history in ways that people can understand, you saw the
:04:42. > :04:48.problem in housing and realise that it would then realise to the banks
:04:48. > :04:51.and then it would move to the Government. This was debt that was
:04:51. > :05:01.effectively building. You did some maths that other people had not
:05:01. > :05:11.done. You worked out the debts cost? As the housing prices in the
:05:11. > :05:13.
:05:13. > :05:18.US metastasised any mood globally, at the beginning of 2008 and into
:05:18. > :05:26.2009 every time a highly levelled institution, where they'd be a bank
:05:26. > :05:32.or financial institution, in the US or Europe or Iceland, the central
:05:32. > :05:40.government decided to take those bad private assets all bad risk to
:05:40. > :05:45.the public down would sheet. We decided in mid- 2008 that we were
:05:45. > :05:49.trying to understand if the world would go through this massive
:05:49. > :05:53.delivering an debt destruction at that point in time all wet but that
:05:53. > :05:58.would move on to the government's balance sheets. Every time you saw
:05:58. > :06:08.a bail-out in 2008, it was moving it to the Government's balance
:06:08. > :06:08.
:06:08. > :06:15.sheets. We went searching around the world to see how the government
:06:15. > :06:19.sheets looks like. No-one was doing this. You would be truly looking at
:06:19. > :06:28.how big debts were and how big revenues were four different
:06:28. > :06:35.governments? That is correct. What really solidified to our search was
:06:35. > :06:44.that when Iceland got into trouble, Iceland has 300,000 people, they
:06:44. > :06:49.only have 20 billion US dollars of GDP, at three banks in Iceland they
:06:49. > :06:53.had $2 billion worth of assets. When the banks went bad, is
:06:53. > :06:58.immediately sank the country. At the height of what went on in the
:06:58. > :07:05.last three or four years, there was no provincial regulator to decide
:07:05. > :07:15.the enormity of the host banking system. No-one was putting earnings
:07:15. > :07:16.
:07:17. > :07:22.on the country's banking system. No-one was paying attention. You
:07:23. > :07:29.you were. You have taken positions against governments that economies
:07:29. > :07:37.would collapse. In 2006 when you thought the markets were obey he
:07:37. > :07:40.said and thought to take a bet, how much money had been made on that?
:07:40. > :07:43.will not discuss particular profitability of our firm. We did
:07:44. > :07:50.very well for our investors and ourselves because we saw this
:07:50. > :07:57.coming. We have losses on one side of our portfolio and its gains on
:07:57. > :08:02.the other. The gains succeeded the losses. It is more important to
:08:02. > :08:12.talk about the global debts Marryat and what will happen going forward.
:08:12. > :08:22.In order to understand it, people will be curious as to how it works.
:08:22. > :08:24.
:08:24. > :08:31.You took a bet against Greek defaulting, 1,000 dollar bets you
:08:31. > :08:37.could make $700,000 because of Greek defaulting? That was in the
:08:37. > :08:47.initial status. Back in 2008, when the world's sovereign debt crisis
:08:47. > :08:53.
:08:53. > :08:58.was not on the radar. The press in the beginning of this crisis,
:08:58. > :09:08.Greece's sovereign debt traded as if it was a German sovereign debt.
:09:08. > :09:10.
:09:10. > :09:20.It traded at 11% basis point. You could buy a German sovereign debts
:09:20. > :09:21.
:09:21. > :09:29.and only pay 11 to 15 basis points. They used were grades A symmetric
:09:29. > :09:38.cages at this time. I appreciate that you don't want to talk about
:09:38. > :09:44.profitability. You are talking about for a thousand dollar
:09:44. > :09:51.advancement and getting back $700,000. That order of magnitude
:09:51. > :09:59.was possible in need 2008. It is not even close to be impossible now.
:09:59. > :10:06.He made that much money on it though? You must realise that this
:10:06. > :10:09.was a hedge to our existing books. We always monitor our hedge ratio.
:10:10. > :10:19.Which not maintain a position in Greece. The a symmetry has been
:10:20. > :10:20.
:10:20. > :10:25.lost. All of the a symmetry in the world lies in Japan. You predicted
:10:25. > :10:35.the default of Greece and the problems that the economy was going
:10:35. > :10:37.
:10:37. > :10:47.to get into. TUC Germany as Denning behind Greece? Would resolve the
:10:47. > :10:51.
:10:51. > :10:58.problems of Europe? They would need massive debt restructuring. You
:10:58. > :11:07.know how screwed-up Europe is when you have a German Pope and an
:11:07. > :11:14.Italian central banker. Debt has grown from 80 trillion dollars to
:11:14. > :11:24.110 trillion dollars. Wrobel credit debt has grown by 11% while GDP has
:11:24. > :11:32.grown by 4%. Portugal, Italy, Iceland and Spain and Greece are
:11:32. > :11:38.all in a state of insolvency. There is no solution for them. The only
:11:38. > :11:45.solution is to pay the bills. BT's of Arab opinion that these debts
:11:45. > :11:50.must be written down. If you pull sovereignty, the eurozone
:11:50. > :11:55.effectively becomes one country, Germany stands behind its other
:11:55. > :12:02.nature's, to us that there resolve the other problems because of
:12:02. > :12:08.Germany's earning power? Know. Germany has to faulted twice in the
:12:08. > :12:17.last 100 years. Germany has 81% sovereign debts. They have not
:12:17. > :12:27.recapped their banks. The rest of Europe has not recapped their banks.
:12:27. > :12:27.
:12:28. > :12:37.US banks are three times we caps compared to Europe banks. Let's
:12:37. > :12:47.assume that Germany goes to doing a Eurobond and takes on, the German
:12:47. > :12:55.
:12:55. > :12:58.Centre Court has ruled that that is illegal, to resolve the bonds. What
:12:58. > :13:04.would they do if Greece was bailed out and then they kept spending and
:13:04. > :13:11.then they went back to Germany and Germany said no we will impose
:13:11. > :13:18.austerity on you now. Germany is in the exact same situation, a Mexican
:13:18. > :13:24.stand-off, meaning there is no winner. Germany will always be by
:13:24. > :13:34.the short hairs every time this scenario comes up. I do not believe
:13:34. > :13:39.
:13:39. > :13:44.Germany will go Orleans, it will not be too big an effect. Angela
:13:44. > :13:48.Merkel, the Chancellor, says that Germany army has one goal to bring
:13:48. > :13:54.about a stabilisation of the eurozone in its current form to
:13:54. > :13:59.make it more competitive to consolidate budgets. Yes, the
:13:59. > :14:08.European union will not work unless it has a centralised taxing
:14:08. > :14:15.authority and every member six seats their sovereignty to be EC
:14:15. > :14:20.you. Unfortunately, I can't get to those goals because there are so
:14:20. > :14:25.many mitigating factors that prohibit me from getting there. I
:14:25. > :14:28.understand the rhetoric, if you were the politicians running this
:14:28. > :14:35.scenario you would say the same things in public. The bottom line
:14:35. > :14:44.is that the markets are telling you that it will not work. You have
:14:44. > :14:48.already mentioned Japan as falling big time? If you just analyse
:14:48. > :14:58.depend there are a few things that to indisputable. They have the
:14:58. > :14:59.
:14:59. > :15:05.worst balance problem in the world. Why did a scheme fail in the United
:15:05. > :15:12.States? More people entering the scheme rather than exciting. There
:15:12. > :15:14.was more people exiting rather than entering. Japan is the most in a
:15:14. > :15:19.phobics Society in the Western world. They have lost three-and-a-
:15:19. > :15:26.half million people in the last four years. They will lose 27
:15:26. > :15:32.million people in the next 40 years to the population demographics.
:15:32. > :15:39.They had the worst demographics of the world. They also have
:15:39. > :15:44.households with savings of 15 trillion dollars. They are second
:15:44. > :15:54.only to China in reserves. They like their own government bonds and
:15:54. > :15:57.
:15:57. > :16:03.there are signs in recent times of growth in the economy. First of
:16:03. > :16:09.four the private assets of the public are more closely 13.2
:16:09. > :16:19.trillion dollars. This is the first time that the sovereign debts have
:16:19. > :16:24.
:16:24. > :16:28.succeeded the individual assets. Italy was sacrosanct. They were a
:16:28. > :16:33.pillar of society up until six months ago. When a ten-year rates
:16:33. > :16:39.when from 5% to 6% they went from stable to crisis in 100 basis
:16:39. > :16:45.points. Japan spends 50% of this central government tax revenue on
:16:45. > :16:52.debt service alone today. Half his interest. If Japan's interest rates
:16:52. > :17:01.move at all, if they moved 200 basis points, 2%, Japan's debt
:17:01. > :17:05.You have made your name as somebody who has made a lot of money betting
:17:05. > :17:09.against governments, that is why you get invited on to a programme
:17:09. > :17:15.like this, and you can say you are betting against France and Japan.
:17:15. > :17:19.Japan is going to go down the tubes, guys. Isn't there a danger of a
:17:19. > :17:23.self-fulfilling prophecy here? That you are going to encourage
:17:23. > :17:28.something that may be in your interests but is not in a whole
:17:28. > :17:34.country's interests? By the way none of this is in my interests,
:17:34. > :17:38.this will happen with or without me. I am a proven predatory, I managed
:17:38. > :17:41.the retirement money of many companies in the United States and
:17:41. > :17:45.all over the world. People invest with me for one reason to try to
:17:45. > :17:50.not lose money and when I invest I own things all over the world and I
:17:50. > :17:54.hedge them with a symmetric positions. I know it is a great TV
:17:55. > :18:01.thing to say, this is someone that has profited at others' the mind,
:18:01. > :18:08.in the mortgage mind marketplace the only thing I profit against was
:18:08. > :18:12.synthetic CEO managers. It would have happened with or without me.
:18:12. > :18:19.But you... the hedges that you are talking about you something called
:18:19. > :18:23.a credit default swap. You take bets. Only in Europe, not in Japan.
:18:23. > :18:27.But let's look at what you did in Europe because it has caused all
:18:27. > :18:31.sorts of problems and politicians have got worked up about it and in
:18:31. > :18:35.various degrees, what is known as naked short selling and short-
:18:35. > :18:40.selling. You have taken out insurance on something you don't
:18:40. > :18:43.know him. If insurance is to protect an investor, why should
:18:43. > :18:48.somebody who does not own that underlying asset be allowed
:18:48. > :18:54.insurance on it? That is a great question. Does Europe have listed
:18:54. > :18:59.options markets on all of its equity and equity investments? They
:18:59. > :19:05.do, don't they? Why are you asking the question? Because the listed
:19:05. > :19:10.options market allows you to buy options on stocks and index is that
:19:10. > :19:15.you don't own, which has gone on for decades. You are alluding to
:19:15. > :19:17.the fact that beers this nefarious marketplace in the debt market
:19:18. > :19:22.place that is different to something in the equity market
:19:22. > :19:28.place. If you want to buy a put option on Barclays Bank, you can go
:19:28. > :19:33.and do it. You have been able to do that for 40 years. But you can't
:19:33. > :19:39.buy insurance on somebody else's house. The whole point of insurance
:19:39. > :19:44.is protection. The reason people get exercised about it. Wait a
:19:44. > :19:48.second... Because this is responsible for exacerbating market
:19:48. > :19:55.falls and increasing volatility. hear you're possibility so it is
:19:55. > :20:01.important to understand one thing. -- I hear your hostility. Greece
:20:01. > :20:06.has $500 billion of one sheet market debt. If you go to the D C C
:20:06. > :20:12.C website and you understand the CVS marketplace, the net situation
:20:12. > :20:17.in Greece is $7 billion. $500 billion cash, $7 billion of CBS.
:20:17. > :20:22.Guess who owns more than half of the $7 billion? The Greek banks.
:20:22. > :20:26.When you saw Merkel and Sarkozy and you saw Christine Lagarde when she
:20:26. > :20:31.was the finance minister of France, on the front end of this back in
:20:31. > :20:35.2010, they were on a warpath about CVS and all of a sudden they stock.
:20:36. > :20:42.When they realised the majority of the people that owns C D s are bona
:20:42. > :20:47.fide hedgers, banks and Greece owning Greek CBS. What I have to
:20:47. > :20:52.say about that is you can't hate the Mirror because you're ugly. All
:20:52. > :20:56.CVS is a barometer of the relative health of that market place. Let's
:20:56. > :21:03.move on to what you said to your mother, when your mother said where
:21:03. > :21:10.should you put your money, you are reported as saying guns and gold's.
:21:10. > :21:13.Why comes and gold's? As you know it is a euphemism. If you have a
:21:13. > :21:18.World governments, looking at the US Federal Reserve's balance sheet,
:21:18. > :21:23.it is very trillion dollars. We have created it out of thin air.
:21:23. > :21:27.Before the crisis we only had one point a trillion dollars. We only
:21:27. > :21:34.had about a trillion dollars of equity in the US banking system,
:21:34. > :21:40.14.5 trillion dollars of access and one trillion dollars of equity. The
:21:40. > :21:45.ECB's Alan Street, three trillion dollars. We have created six
:21:45. > :21:51.trillion dollars out of thin air -- balance sheet. Why would you want
:21:51. > :21:55.to own paper currency? We have only got a few minutes, I just want to
:21:55. > :22:01.explain. It is why you have bought gold bullion, it is why you have
:22:01. > :22:07.gold bars sitting in a bowl. Buying gold is just buying a put against
:22:07. > :22:11.the idiocy of the political cycle. What about the other advice, guns.
:22:11. > :22:16.Is that because you fear social unrest as a result of what is going
:22:16. > :22:20.on. I think if you look through history and you understand through
:22:20. > :22:24.history when debt levels, aggregate debt levels in various countries
:22:24. > :22:29.Clovelly, get to levels... by the way where we are today is the
:22:29. > :22:34.largest level of peacetime debt in world history. Typically through
:22:34. > :22:38.history countries with debts would go to was to get to where they are
:22:38. > :22:46.today. To the victory goes these files and to the loser does defeat
:22:46. > :22:50.and default. If we are right about this global disaster coming, it is
:22:50. > :22:53.likely to at least rupture of the social fabric of the world like
:22:54. > :22:57.you're seeing throughout the world today. I think it will be a more
:22:57. > :23:03.dangerous place for the next seven years. It is not the end of the
:23:03. > :23:08.world it just means it will be less socially cohesive. You are reported
:23:08. > :23:13.as having bought a very large fort in Texas and having an Arsenal of
:23:13. > :23:19.weaponry there. Is that because you fear what could happen? No. This is
:23:19. > :23:24.hyperbole. I bought a share in a Ford in Texas, it is not a fault it
:23:24. > :23:28.is a ranch, everybody in Texas goes to ranches on the weekend. I
:23:28. > :23:32.support the troops from both the US and NATO when they get wounded,
:23:32. > :23:37.that is where I spend my philanthropic capital, giving to
:23:37. > :23:42.those who have risked their lives for both of our countries. These
:23:42. > :23:45.reports get all in my opinion built on one another. One other thing you
:23:45. > :23:50.have been quoted on is the suggestion that actually we're
:23:50. > :23:55.going through this because it's atonement for past profligacy.
:23:55. > :23:59.is. You have to realise capitalism without bankruptcy is like
:23:59. > :24:03.Christianity without help. You have to have atonement for the
:24:03. > :24:07.ridiculous levels of spending that both the US and Europe have gone
:24:07. > :24:13.through. When you run 10% fiscal deficit, that does not sound too
:24:13. > :24:20.bad, but when your government revenues are 16% of GDP, you're my