Erez Kalir: U.S. Is On Its Way To 'Economic Death'

Erez Kalir of Sabretooth Capital spoke at the Ira Sohn Conference yesterday, and said that the U.S. is headed towards "economic death", and also gave some ideas that were of the more cheery variety. He said that MBIA MBI a few years ago had economic death written all over it, as the equity and credit markets thought the company has a small chance of surviving, and there are still a lot of smart people who think the company is on its way to 0, and are still short it as a result of it. Kalir thinks this is wrong, and he is selling selling 2 and 5 yr credit protection on MBIA. He also likes the common stock. Kalir thinks the litigation against MBIA will fail, and the company has a lot of leverage to get out of the predicament it's in. He feels people, such as the State Attorney General of New York do not want to force MBIA into receivership. The second big leg of the short thesis against MBIA is the company still has legacy credit risk that will kill it, and the structured products unit still scares people. This has been most predominantly discussed by Bill Ackman, who is no fan of the company. The open source models fail to take into account the future value and present value of MBIA's structured products. Most of the toxic assets are materially smaller than originally thought in the short thesis, and there is little chance of structured products driving the subsidiary into Chapter 11. The last core short thesis is the company's municipal market exposure.. Kalir agrees that there is a crisis in the municipal bond market, but the level of crisis is not where many think it is. MBIA should hold up well to a hard stress test. Kalir thinks there is 100-200% upside, and 30-40% downside. It trades at less than one-third book value. Kalir went on to discuss Argentina, and said to buy the country's exploration and production sector, as the country possesses enormous oil & gas assets. Argentina knows where the assets are, and it has a first rate energy infrastructure. Kalir mentioned names like Americas Petrogas, Magadelna Ventures and YPF. Lastly, he discussed the U.S. fiscal situation, and how it is heading towards an accident. The Federal Reserve has told us that inflation is coming, and the Fed thinks it's too confident to control inflation. Kalir thinks we could be headed towards economic death, which Argentina experienced right before it defaulted. He says to buy gold, even though President Kennedy extended FDR's act of making gold ownership illegal, even in foreign countries. Kalir said to go short U.S. Treasuries, in one way or another. One way to do this is buy ProShares UltraShort 20+ Year Trea ETF TBT. The last hedging strategy would be to own dominant stocks with pricing power, like Procter & Gamble PG and Johnson & Johnson (NYSE; JNJ). The problem with this strategy is that all capital fails in a hyperinflation situation when a loss of confidence occurs. Kalir concluded by saying own farmland outside the U.S. is best way to play economic death.