You mistake me...
... Cryhavoc101, the whole thing would be done clandestinely, with U-boat kits assembled elsewhere and new merchantmen passed off as a civil fleet expansion. Like the 'Luftwaffe gliders' business. A fleet of fifty HSK would be feasible and so would a lot of U-boats. By all means build more destroyers and a few monitors to menace Russia in the Baltic, but capital ships could be restricted to five Deutschland class heavy cruisers. The real threats are unseen and very difficult to prove. In a corner of a hold are cases of weapons and ammunition ready for the admittedly numerous crews to emplace on the reinforced decks of each HSK. In general, hard to detect and to prove.
No no no - I totally understand but this idea presents the old unintended consequences shenanigans
Let me explain.....
When Germany and the UK entered into the OTL Anglo-German Naval Agreement of 18 June 1935 it allowed the German Navy to build a balanced fleet that matched the RN in a 35:100 ratio (if memory serves U Boats were allowed to be 45:100 and later parity? Notably Germany started WW2 with just 59 Submarines (UK had 59!) ) - this agreement was important to Germany because it satisfied the UK and kept them from seeking earlier methods for opposing Germany's rearmament as well as rearming themselves and also drove a wedge between the UK and France as the British went ahead with the agreement in spite of French resistance. It also appealed to Hitler's long term hopes of either aligning with the UK or having the UK give Germany a free hand on the continent to achieve their long term goals.
So without building a balanced fleet and entering into an agreement of this type which the British thought would take Germany till 1942 before they reached this 35:100 limit (other than U-boats they never reached it) - the British are not placated and are therefore far less sympathetic to Germany's rearmament.
So sure - build up a mighty 'Jeune Ecole' fleet - and yes this would be far more effective vs the British/Allied Merchant fleets - but don't expect to be able to keep it a secret (you have more chance of farting your way in to low orbit around Jupiter) and given that it has but one target (the British Merchant Fleet) expect a far far different reaction by the UK to Germany's rearmament and subsequent Hitler Brinkmanship during the late 30s.
Also expect Britain's ship building priorities to be different in the face of a 'Jeune Ecole' fleet strategy and with a real or perceived threat from such a fleet hot in the minds of their nibs in Whitehall expect the treasury to have been taken by cutlass wielding blue jackets and the pursestrings prised open far earlier than it was.
Even a percentage or 2 increase allocation of the Budget earlier than OTL is going to make a massive improvement to the British Rearmament program. Remember that the British Military Budget in 1938 was just a 4% slice of the entire budget rising to a mighty 8% in 1939 - and this pre-war was paying for the world's largest Navy (including the laying down of numerous capital ships from 1937), expansion of the Army including mechanisation and the lions share on the RAF and associated industries (Shadow factory schemes).
Britain thought it could make deal's with Hitler and so they did, and a large part of that was driven by Germany's agreement to the AGNA to build a balanced fleet (and therefore have a fleet that could not threaten the UK's domination of the seas) - which prevented Germany from building the fleet you have suggested and the one that the British feared most.