We believe there is an opportunity today to bet against US corporate credit that meets the three key conditions we seek at BC-GUMPS when considering investments. This opportunity is the result of significant consensus building, which is a natural consequence of 30+ years of interest rate and volatility suppression. And when this trend eventually reverses, it will manifest in wider spreads, lower secular margins, and weakness in US corporations.
Current and former accounting standards like GAAP and all its cousins have failed to create a useful language for achieving investors’ goals. GAAP’s broken approach to accounting is the result of changing focus, changing goals, and a target of creating rules for rules’ sake, not for creating a useful end product. We tailor-built an approach and model at BC-GUMPS that systematically address these issues.
Faulty data, ineffective ratings agencies, yield-chasing, and recency bias in credit insurance markets makes for breakdown in valuations in Credit Default Swaps today. We have built a proprietary valuation methodology and a systematic approach to identify those names most affected by these issues.
Photo from YouTube In an iconic scene in “The Big Short,” a 2015 film about The Great Recession of 2008, Dr. Michael Burry (Christian Bale)