Kyle Bass Blog

Kyle Bass On China

noreply@blogger.com (Ili) — Fri, 30 Oct 2015 10:21:00 +0000

Hayman Capital's Kyle Bass discusses China at Sohn San Francisco:

*HAYMAN'S BASS SAYS CHINA 7% GDP GROWTH IS A 'FARCE' *HAYMAN'S BASS SAYS HE'S ASSUMING CHINA CREDIT CYCLE HAS BEGUN *HAYMAN'S BASS: CHINA WILL FACE NPL CYCLE, CREDIT CONTRACTING *HAYMAN'S BASS: ASSUMES 8.5%-10% CHINA LOANS NON-PERFORMING *HAYMAN'S BASS SEES EMERGING ASIA BANKING CRISIS AHEAD Confirming our previous detailed analysis on China's Banking System's Neutron Bomb.

Source: Zerohedge.com

Bass tells Fortune he expects a ‘hard landing’ for China and the global economy, but that it won’t be as bad as the 2007-09 financial crisis. Kyle Bass, head of Dallas-based hedge-fund Hayman Capital Management, rose to prominence in 2007 for being one of the few investors to spot the U.S. financial crisis early, and to profit from it by betting against subprime mortgages. He successfully called Japan’s banking problems (and bold monetary stimulus) a few years later, and now he’s saying China will be next. In an interview with Fortune prior to his appearance at this week’s Ira Sohn investing conference in San Francisco, Bass offered reasons why China’s impending banking crisis, though far bigger than the U.S. crisis in terms of the assets at risk, will have a smaller impact on the global economy. He also explained why the hedge fund business is less forgiving than it has ever been. Edited excerpts of the conversation follow. Fortune: You have said the banking system in China is under-capitalized, and the country could blow through foreign reserves quickly. What does China’s banking system look like? Kyle Bass: It’s not a mono-variable equation. Foreign reserves aren’t China’s only access to capital – they can sell bonds and they can actually print more money. But when you are thinking about their... Read The Full Interview at Fortune: Fortune

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass Bearish on Emerging Markets for at least 2 More Years. Looking to Short Currencies

noreply@blogger.com (Ili) — Wed, 16 Sep 2015 05:07:00 +0000

Kyle Bass, the founder and manager of Hayman Capital and the man who spotted and shorted successfully the subprime bubble was interviewed today at CNBC. He shared during the “Squawk on the Street” show that he is bearish emerging markets and believes that the Chinese economical issues are just starting and that’s because the banking sector still has more bad debts to reveal and write-off. According to Kyle the loans pass due in 90 days grew by the whooping 167% just for half an year. He thinks that it will take at least 2-3 quarters until the banking sector reaches its NPL peak and thinks that this will force the government to recap its banks. But Kyle shares that it will be at least 2 more years until the emerging market slowdown is over and banking problems are fixed.

Read more: Kyle Bass Bearish on Emerging Markets for at least 2 More Years. Looking to Short Currencies

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass Shares His Trading Strategy And Insights About Trading

noreply@blogger.com (Ili) — Wed, 27 May 2015 07:17:00 +0000

Kyle Bass Shares His Trading Views

One of the actions that took centre stage in 2015 has been going short on the EUR/USD currency mostly because the ECB is implementing strongly quantitative easing (QE), and the Fed in the US starting to place a grip on its policy with a surge of interest rates lurking around the corner. The greenback has literally been trending higher while the Euro has been losing ground. Also the expectation of the ECB purchasing bonds has seen the price of such securities go higher while the yields have been falling. Kyle Bass disputes the general belief

Kyle Bass, the hedge fund manager from Texas and founder of Hayman Capital Management, gives a fantastic interview to Raoul pal. Showing now on Real Vision Television. In the interview, Kyle Bass responds to a few questions and also reveals the trading ideas that he has for 2015, and also offers investors some advice. According to Bass, he believes that those investors in Europe taking a position to trade the market with QE in mind might be making a mistake and could be caught with a surprise “The market seems to be misjudging the rates in Europe at present, it’s kind of front running Draghi” he noted. He also added that “ Even though in a slow pace, the economies of Europe at present seem to be showing signs of recovery and standing firm; and I’m of the opinion that those investors active in the European market and buying lots of bonds would be left clinging on to the bag.”

For 2015 the European rates are topping his trading ideas “taking a short position regarding bonds and paying European rates” he noted (i.e. he is making a prediction for the EU yields to hike, which it should be fairly said, since this interview was made, that is exactly what has been happening since the start of May)

“We had it all wrong”

When he was asked to talk about the last trade he had gotten wrong and the reason why, Kyle Bass referred to the trade he had made on Japanese interest rates, betting that they were going to increase, he then explained why he had thought so and what really happened.

“We all had the wrong impression” he noted. “That one we definitely had got it wrong, thankfully at least with the currency we had it correctly.” For the past 4 ½ years, he has highly been involved in Japanese trade. The trade consist of two parts – the Japanese rates and the weakness of the Yen. With the weakness of the Yen it seems to confirm itself, but the rates have just not been playing as expected…not yet.

“What I would advise”

Kyle Bass also provide the best advice he had to investors, placing accent on the necessity to have humility and insight, even when it comes to trades that are to be considered as self evident. “The best advice I could provide is that you cannot place forward your self-esteem in such a matter,” he noted. “It implies that if you have some theory you have well researched, thought of, and that are quite convinced about it, and that you are wrong, it is necessary that you admit of having been wrong.

“I’m of the conviction that by showing humility into the matter, you will make savings of a lot of cash.”

Real Vision Television was launched last year by Pal, a former GLG fund manager – the television is provided on-demand subscription and offers a wealth of information regarding investing and economics. Pal launched the TV program because he sought of having true and frank discussions with those who are considered as champions in the industry and that a traditional financial television just does not seem to provide.

http://www.octafinance.com/kyle-bass-shares-his-trading-strategy-and-insights-about-trading/65382/

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

What Tomorrow Will Bring According to Kyle Bass

noreply@blogger.com (Ili) — Mon, 30 Mar 2015 07:49:00 +0000

What Tomorrow Will Bring According to Kyle Bass.. Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass And Raoul Pal New Interview!

noreply@blogger.com (Ili) — Sat, 14 Feb 2015 07:26:00 +0000

Kyle Bass Interview was just released by.

The Chain with Kyle Bass from Real Vision Television on Vimeo.

Raoul Pal who not long ago launched his 2-nd project, Real Vision Television, a $400 annually subscription service that will offer interviews with legends in the investment business, has interviewed Kyle Bass. Raoul Pal is the man behind the Global Macro Investor (GMI) a service that costs $40k per year for subscription and is limited to only hedge funds and wealth managers.

Raoul’s new project, Real Vision is an on-demand subscription video service that offers a library of interviews, content on investing, market and economics.

Raoul Pal interviewed the Texan hedge fund manager Kyle Bass and talked with him how he thinks and feels about investing and managing the business. The interview covers how the founder of Hayman Capital, Bass got into the hedge fund industry and how he trades.

Kyle Bass also shared personal feelings such as: “I constantly feel inadequate, which may be what drives me,”

Kyle Bass shared that many people are helping him to navigate the markets and his own negativity. May be that negativity makes him so good at picking investments? Kyle thinks that communication is key.

You can also watch Kyle Bass interview on CNBC where he shared his views on the EUR and Oil markets.

Bass predicted oil prices will be $60 to $70 a barrel in two years. “Right now we’re in a pretty big supply glut,” he said. “Could it trade at $35 today? It absolutely could. We have more than we know what to do with.” He did say he’s still bearish on Japan. Bass made a name for himself in 2007 with a lucrative bet against the subprime mortgage market.

Source: Kyle Bass OctaFinance

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass Still Likes General Motors and sees high volatility soon

noreply@blogger.com (Ili) — Wed, 22 Oct 2014 18:18:00 +0000

GM is Hayman’s largest position. Hayman still owns General Motors

Bass: Fed tapers to zero next week Kyle Bass, Hayman Capital Management, provides his view on central bank policy and the health of the global economy. Hayman discusses his currency outlook also.

Kyle Bass predicts more macro volatilityDiscussing the potential blow back from Japan’s debt crisis, with Kyle Bass, Hayman Capital Management.

Kyle Bass warns QE end will shake up markets

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass Thinks Japan’s Debt Crisis At “Transformative Moment”

noreply@blogger.com (Ili) — Fri, 26 Sep 2014 12:58:00 +0000

Bass said recent ECB quantitative easing decision is "going to be difficult to stop" as he sides with Loeb over Ackman in Herbalife dispute

Kyle Bass is taking sides in the William Ackman / Herbalife Ltd. (NYSE:HLF) dispute, thinks Japan is at a “transformative moment” in its government debt crisis and likes one segment in the U.S. banking sector, and it’s not the banks.
Kyle Basson ECB’s quantitative easing program

The recent European Central Bank (ECB) announcement that it is engaging in U.S.-style quantitative easingis a historical benchmark that is providing opportunity. “It’s the beginning of something that is going to be difficult to stop,” Kyle Bass said on a CNBC interview.

“The opportunity right now happens to be in the currency market place,” but the impact will be felt by multinational corporations, he said. The rising U.S. dollar over the past 6 months one consequence, Kyle Bass said, touching on a trade that started in anticipation of the ECB move well before the official announcement.

Kyle Bass’s observations on Japanese government debt crisis

Kyle Bass is known for his keen observations regarding Japan’s government debt crisis, and his thesis is beginning to materialize. “When debt gets to 150 percent of gross domestic product and 25 percent of tax revenue is used on interest payments alone (with very low interest rates), when you get to that point you are already technically insolvent,” he said.

“It’s a bit hyperbolic to say they are headed for a crash, but we believe there are two outcomes,” that will impact the currency and rates. “So far the BoJ has bought all the bonds. They have monetized the fiscal deficit and will monetize the current account deficit. So far that has worked, meaning it held rates low and devalued the currency.” The Japanese currency has gone from 76 yen to the dollar to 108 yen to the dollar as a result. Kyle Bass doesn’t think this is the end, predicting that the yen is headed to 125 to the dollar “fast,” because for the first time the BoJ will run a full current account deficit.

“This is a transformative moment in their debt crisis,” he said.
Kyle Bass says U.S. housing market has rebounded nicely

When considering the U.S. housing market, Bass says it has “rebounded nicely,” as year over year home prices up 5 percent. “It’s not the double digit gains we saw in the last couple of years, but it is just normalized.” Housing should normalize to where median income is, he observed. How’s he playing this opportunity?

Kyle Bass is focused on one sector, and that is the non-bank mortgaging servicing sector. New capital rules for the banks require banks to sell non-performing loans, which should present opportunity.

When CNBC’s Andrew Ross Sorkin asked Bass what he thinks of the banks, he responded that he doesn’t own any banks, noting that capital standards are tougher and “regulations a lot tougher,” he observed.

“I don’t think there is huge opportunity there.”

When asked about Herbalife Ltd. (NYSE:HLF) and William Ackman, in the live broadcast (the recording of these comments was not posted) Kyle Bass said he supported Dan Loeb and Herbalife, noting that when he was invested he sent one of his hedge fund’s employees in to become a distributor and examine the business from the inside. “This is a legitimate business, it is not a Ponzi scheme,” he said, although he is no longer invested in the firm. Bass said he would take Loeb over Ackman any day.

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass: Hayman Global Outlook Video And Presentation

noreply@blogger.com (Ili) — Thu, 24 Apr 2014 14:46:00 +0000

Kyle Bass gave a presentation at the CFA SOCIETY DALLAS-FORT WORTH ANNUAL FORECAST DINNER on February 14th. Below readers can find the full video of Kyle Bass speaking as well as the 20 pages, the theme of which was titled, ‘Hayman Global Outlook Pitfalls and Opportunities for 2014 ‘ United States Fed Tapering & Improving Trade Balance

• On December 18, 2013, the Federal Reserve announced it would ‘taper’ its monthly asset purchases by $10bn to only $75bn a month; subsequently, on January 29, 2014, the Federal Reserve announced it would ‘taper’ another $10bn to $65bn a month.

• A continuation of the policy would see additional asset purchases cease by end of 2014 and stabilize the size of the Federal Reserve’s balance sheet.

• The revolution in unconventional oil and gas projects that has emerged via fracking of shale have radically increased the hydrocarbon production occurring within the U.S. Revolution of Hydrocarbons in U.S As U.S. crude oil production has increased dramatically led by the shale oil revolution while U.S. consumption of petroleum and other liquid fuels has reduced off its peak in 2005, U.S. net imports have declined dramatically, a trend likely to continue. Unconventional Hydrocarbons Are Changing U.S. Trade

• U.S. crude oil production has returned to levels not seen since the late 1980s.

• It is one of a series of factors that has narrowed the U.S. current account deficit to the lowest point since the late 1990s

• That period coincided with the largest USD rally since Paul Volcker slayed the inflation dragon in the 1980s. Japan Abenomics & Quantitative Easing Real Yield Divergence – U.S. vs. Japan

• Japanese CPI has picked up while nominal yields remain close to all time lows forcing Japanese real yields into negative territory, part of the Bank of Japan’s attempt to force a reallocation of capital from JGBs further out on the risk curve.

• At the same time, US inflation remains anchored while growth and the Federal Reserve’s tapering of its QE program has led to nominal yields creeping upwards; this has created a long term rising trend of US real yields.

• The real yield differential has a strong correlation to the value of USD/Yen over time

• Hayman expects the current divergence to continue and to force further Yen weakening.

Kyle Bass Presentation Hayman Global Outlook Pitfalls and Opportunities for 2014 by ValueWalk

Kyle Bass Presentation Hayman Global Outlook Pitfalls and Opportunities for 2014

Full presentation video and PDF below Presentation provided by: http://www.valuewalk.com/2014/04/kyle-bass-hayman-global-outlook-pitfalls-opportunities-2014/

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Why Japanese bonds look 'terrible': Kyle Bass

noreply@blogger.com (Ili) — Tue, 15 Apr 2014 20:12:00 +0000

Hayman Capital's Kyle Bass believes Wall Street's recent declines in the biotech and social media sector, which spread to global stock markets last week, shows cracks in the Japanese economy. The Japanese Nikkei saw a huge drop last Friday, but the country's benchmark 10-year government bonds did not see yields change as investors fled stocks. Bass, one of the biggest critics of the Japanese economy, has made a big bet on Japan's economy devolving into a debt crisis. During an interview on CNBC's "Squawk on the Street" on Tuesday, the hedge fund manager said questions remain whether Japan will lose control of interest rates or whether the yen can serve as an "escape valve." Bass sees inflation quickly surpassing Japaneses bond yields, he said. "The interesting thing in this selloff in the marketplace and in tech ... and this huge selloff in Japanese equities, is that the Japanese bond market hasn't gone anywhere," Bass said. "Yields haven't collapsed, which is fascinating. So their bonds are acting pretty terribly in the environment of their equity market. So we'll see what happens."

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass: General Motors shares could touch $50, despite probe

noreply@blogger.com (Ili) — Mon, 07 Apr 2014 17:31:00 +0000

Bass, founder of Hayman Capital and owner of a big position in GM, said he believes the automaker's stock could trade in the high $40s or even touch $50 a share in 12 to 18 months, more than $15 higher than current prices. Bass told "Squawk on the Street" that GM is one of the cheapest stocks in the market. He also said the government could find itself liable for claims related to faulty ignitions because it took over the company when GM filed for bankruptcy in 2009. His bullish stance on GM came as a vehicle safety group attributed 303 deaths to faulty air bags in GM vehicles. "When I look at this, this was not a bankruptcy," Bass said. "It was a government takeover of GM. It may very well be that the government is liable for the claims that the government is looking into. A lot of these claims were discharged in bankruptcy and the government ran the company for a while. I find it kind of silly." During his interview with CNBC, Bass also explained why his hedge fund increased its stake in nonbank mortgage servicer Nationstar Mortgage Holdings, a company under scrutiny from New York state banking regulators. Earlier this month, New York State Financial Services Superintendent Benjamin Lawsky demanded information from Nationstar about its portfolio and practices as his office looks at whether smaller, nonbank servicers can handle large numbers of mortgages.

Bass added that nonbank servicers such as Nationstar don't generate large numbers of complaints compared to the number of delinquent mortgages they handle. "The banks are almost three times worse at doing this and yet the regulatory inquiry is in the nonbank sector?" Bass said. "Ben Lawsky should focus on who the worst players are and not who the best are."

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass bought Argentine bonds last year

noreply@blogger.com (Ili) — Mon, 03 Feb 2014 23:03:00 +0000

Kyle Bass said he bought Argentine bonds at 55 cents on the dollar last year and has no plans to sell even as global investors say there’s an 86 percent chance Argentina will quit paying in the next five years. “There’s huge opportunity in these bonds,” said Bass, who manages about $2 billion for Dallas-based Hayman Capital Management LP. “I know you can’t see that today, but today’s the time to be thinking about it.”

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass of Hayman Capital Said to Invest in General Motors as a Bet on Detroit

noreply@blogger.com (Ili) — Tue, 28 Jan 2014 11:54:00 +0000

In December 2013, Kyle Bass took a stake in General Motors Co. (GM), said a person familiar with the matter, indicating further investor confidence in the auto industry’s recovery as the U.S. winds down its ownership role.

“Detroit is back. And GM could lead the way forward on the equity front,” the Dallas-based fund founded by J. Kyle Bass said in a presentation published on the website HVST.com. “GM equity represents one of the most compelling risk/reward situations of any large cap in the world today.”

The largest U.S. automaker should increase in value by more than 40 percent in 12 to 18 months, Hayman Capital said in the presentation. The stake in Detroit-based GM is one of the hedge fund’s largest investments, said the person, who asked not to be identified because the matter is private. Hayman declined to disclose the size of its stake.

The U.S. Treasury expects to sell its remaining 31.1 million GM common shares by year-end, depending on market conditions, the government said last month. The sale would come after almost half a decade of U.S. government oversight following its 2008 bailout and 2009 bankruptcy. Bass, known for his prescient bet against subprime home mortgages before the financial crisis, said the U.S. exit is a trigger for the stock. “The U.S. government will be out of the way before the end of the year,” Bass said yesterday in a telephone interview. “They’ve been a source of constant selling pressure in the equity this year.”

GM should “at least trade in line” with its auto peers, according to the Hayman presentation. Bass said that by his reckoning, GM trades at three times Ebitda, while Dearborn, Michigan-based Ford trades at 4.4 times Ebitda.

“A strong case can be made that GM should trade at a premium to the group,” Hayman said. Bolstering that investment argument are the company’s “unique position and strong underlying fundamentals, a best-in-class leverage to global growth markets, improving operational efficiency from ongoing turnaround efforts and an improving product cadence.”

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass, founder of Hayman Capital Management speaks with Bloomberg’s Stephanie Rule about Herbalife, activist investors and his own investing ethos

noreply@blogger.com (Ili) — Thu, 05 Dec 2013 22:47:00 +0000

Kyle Bass On The Fracking Revolution

noreply@blogger.com (Ili) — Sun, 24 Nov 2013 22:22:00 +0000

Kyle Bass: Fed Won't Raise Interest Rates for Another 3-5 Years; Stocks "The Only Game In Town"

noreply@blogger.com (Ili) — Thu, 31 Oct 2013 11:24:00 +0000

Via Financial Sense Newshour:

Jim: Do you feel the debt ceiling debate and the political theater in Washington are hurting U.S. credibility and our capital markets in the long-run?

Kyle: No...the entire world is in the same position we are in one way or another. That’s painting the world with a broader brush, but when you look at the developed western economies (and, of course, we’ll exclude countries with no net debt like Australia and Canada that are natural resource heavy), but the developed western economies with the largest debt loads are all in the same boat. Whether or not they have debt ceilings in the U.S. or bank note agreements like they had in Japan until they recently abolished them, there are all of these potential glass ceilings that are put on the marketplace that always tend to move. I think since 1960 we’ve raised our debt something like 82 times.

Jim: Economists have often said—I’m thinking of “This Time Is Different” by Reinhart and Rogoff—when countries have debt-to-GDP ratios over 100%, they get into trouble; Japan’s is 230%. Why have they not had trouble up until now?

Kyle: When you think about what Reinhart and Rogoff’s book says, it kind of gets to an answer but it’s not the right way to look at things; there are many more variables to analyze the situation with. One is, of course, debt to central government tax revenues—that ratio. Another one is what percentage of your central government tax revenues do you spend on interest alone? Those barometers are much more impactful than just using a debt-to-GDP barometer. And then when you think about Reinhart and Rogoff’s work, if you’ve read all the white papers that they’ve written prior to writing the book, one of the other conclusions that they draw is when debt gets to be about 100% GDP it becomes problematic. Well, what that means is, typically—and, again, painting the world with a broad brush—central government tax revenues are roughly 20% of GDP. So what they’re telling you is when debt gets to be 5 times your revenue, that’s when you start to have a problem. Historically, the analysis that’s been done empirically by academics has focused on the countries that have fallen into a restructuring or a default as a result of this ratio that you and I are discussing. Historically, those have been emerging market economies that have higher borrowing costs. So, it actually makes complete sense that that number is too low when you’re talking about a developed market economy versus an emerging economy because, in theory, a developed economy can borrow at lower rates than an emerging economy can. That being said, in Japan, when the debts are 24 times their central government tax revenue, they are already completely insolvent—it’s just a question of when does it blow up.

Jim: I want to turn our attention to the stock market right now and your view of where you see the markets right now. They don’t seem overvalued when you compare them to 2000 or 2007, but they’re not cheap; and, where do you go in a market when the rate of return on cash or bonds is hardly anything?

Kyle: I think that as long as the Fed—for instance, the Fed is still buying $85 billion a month; almost a trillion a year—you could argue that the Fed is being more stimulative today than they were a year or year and a half ago. When we were running a trillion to a trillion and a half deficits, the Fed, at a trillion dollars in a deficit, was buying every bond that was issued. Today, you have a scenario where the fiscal deficit in the U.S., we think, is somewhere around 650 to 700 billion dollars. So, in theory, the Fed is actually adding more money to the economy today than it was a year ago because the deficit is lower and they’re still buying the same number of bonds. So what I’m saying is the monetary base continues to expand. What the economists are saying is velocity continues to drop at a faster rate than the base is expanding. Well, velocity, I believe, is a coincident indicator at best—possibly a lagging indicator. So, when the v [velocity] turns around that’s when inflation shows up, but for now--you’re asking about stocks…I think, given the lack of nominal yield in the bond market, all of the new money is going to continue into stocks. The interesting thing is it’s going to make the rich people richer and the middle and lower class won’t be any better off, which is the opposite of what the administration is trying to pull off.

Jim: What is your outlook on when the Fed will taper or, eventually, raise interest rates?

Kyle: I personally think that what enables the Fed to taper, again, is a contraction in the fiscal deficit. Now, part of that equation will be remedied by higher tax collections; unfortunately, the other side of that equation is, of course, lesser spending, which isn’t going to happen. So, I believe they can taper to the extent that the fiscal deficit has contracted. I don’t think that they’ll be able to raise the Fed funds rate any time in the foreseeable future—3 to 5 years.

Jim: So, that would argue that stocks would be a better play.

Kyle: Unfortunately…because it feels like they’re making it the only game in town. It’s not your choice, but it’s the only answer though. [End transcript]

In the rest of this must-listen interview, legendary hedge fund manager Kyle Bass gives investors his most recent views on Japan, the impact and outlook for shale gas in the U.S., and a wide range of other topics.

If you would like to hear this full must-listen interview with Kyle Bass airing this Wednesday, CLICK HERE (http://www.financialsense.com/subscribe) to subscribe.

Kyle Bass: No good way to hedge from US default

noreply@blogger.com (Ili) — Wed, 09 Oct 2013 20:43:00 +0000

Kyle Bass and his macro views from the Alpha Hedge West Conference

noreply@blogger.com (Ili) — Tue, 24 Sep 2013 22:57:00 +0000

On FED

Kyle Bass thinks that the first taper will be easy one. The real problem will be the fiscal drag of moving Fed Funds rate from 0% to 3%.

About China, Kyle says he is Not investing in China now. He thinks the country is "Univestible" due to banks and shadow banking systems. Same as Jim Rogers, he is also Staying away from India too. Branded luxury and quality did well post crisis. China has not adjusted from command and control yet. Kyle sees a restructuring.

On Argentina

Kyle Bass said he likes Argentina. He believes that people don't understand what is happening there. Lots of things there are fixable. Leadership is in active control and can fix "issues" :). Energy has been an issue, but recently there have been major energy findings that will change that. Two years from now, he thinks there will be a new President in October 2015 and pro-business people will be running things to take advantage of vast prairies of nature resources. Argentina's problems can be fixed in 2 years. He feels now is the time to start investing. Sees 50% upside in the sovereign debt.

Kyle Bass on Japan

US Recapped their banking system, while EU is 3.5x more leveraged than the US. At some point, debt will matter. Has always eventually mattered the last 2000 years. When debts are 24 times revenues you are finished, it is just a matter of when. Hopes he is wrong. More he looks, the more he thinks it will happen. Sees it happening the next few years. Avoid Europe. US is 4.5x debts to revs. Japan is 24.

When asked how mutual should funds feel about Macro risks?

Kyle says that If he was long only, he would not be able to sleep at night. A Japan crisis could not be contained. It would have huge impacts. During the Tequilla crisis, Mexican equities went down 90%.

Kyle Bass is worried about China. Sees a full-scale recession in 2014

noreply@blogger.com (Ili) — Sat, 10 Aug 2013 19:20:00 +0000

According to Hayman Capital’s letter, Kyle Bass is worried not only about Japan but also China. Kyle Bass expects a full-scale recession in China in 2014. He is taking risk down in the funds because he is worried about China according to investors’ letter sent in July. China problems probably mean bad news for asset prices worldwide. The credit expansion in China was huge in the last 5 years. The compounded annual growth of bank assets has been about 31%. If US banks did the same, it means 33 trillion USD in credit for 5 years. This rate is 3 times higher than what the US had the peak of the bubble in 2006. Kyle Bass is worried that easy liquidity from the PBOC will not be enough to keep growth because of diminishing marginal returns.

The debt to equity rations of Chinese firms are exploding as they funnel more capital, not into yield returning investments but to fill black holes on their balances. In the industrial sector, there is deflation as overcapacity is obvious.

"The speed and depth of the Chinese policy response will help determine the severity and duration of this crisis. If the Chinese address the issue quickly and move decisively to rein in credit expansion and accept a period of much lower growth, they may be able to use the government and People's Bank of China's balance sheet to cushion the adjustment in the economy," Kyle Bass wrote.

"If, however, they continue on the current path and allow this deterioration to reach its natural and logical limit, we will likely see a full-scale recession as well as a collapse in asset and real estate prices sometime next year."

The firm's flagship Hayman Capital Master Fund is up 16.73% this year through May, according to investor documents. Last year, the fund returned 16.66%, beating the benchmark. Hayman passed $2 billion in assets this spring; besides the main hedge fund and a fund focused on Japanese debt and currency. It seems Kyle Bass is doing well not only with his views but also his execution of trades.

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass: Japan Stimulus Still Not Enough

noreply@blogger.com (Ili) — Wed, 19 Jun 2013 09:23:00 +0000

According to Kyle Bass of Hayman Capital, the Japanese stimulus and money printing should be even larger to achieve the wanted results at keeping low the interest rates while bringing down the value of the yen and up the stock market.

"If Bank of Japan investors believe in Abenomics and (BOJ Gov. Haruhiko) Kuroda's plan to double the monetary base in the next couple years and generate some inflation and growth, then a rational investor who holds their bonds is likely to sell a portion if not all of them," Bass said.

During a visit in Japana, Kyle Bass saw it with his eyes that many investors believe that BOJ will be able to temporary generate some growth and wealth. This means that rational investors will sell bonds as inflation expectations will go up. There is quadrillion yen in bonds. If 5% are sold, that’s 50 trillion yen.

That’s why according to Kyle, the plan of BOJ is not big enough. According to the BOJ plan announced April 4, the central bank will buy 60 trillion yen ($630 billion) in bonds both this year and next. The market reaction is clear according to him. The biggest banks started selling bonds and started buying Japanese equities and foreign bonds. What’s still unclear is when BOJ will increase its asset purchase program and by how much.

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass Comment

noreply@blogger.com (Ili) — Tue, 18 Jun 2013 17:02:00 +0000

“Effectively doubling the largest financial experiment the world has ever seen is not exactly risk-free, but it seems like an absolute necessity if the BoJ would like to maintain any optionality aside from checkmate.” —J. Kyle Bass on Abenomics, Hayman Capital, 5 June 2013

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass talks on Why Japan is Doomed

noreply@blogger.com (Ili) — Tue, 18 Jun 2013 10:17:00 +0000

This is a presentation during the Strategic Investment Conference 2013

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass: Confused why Gold is so Low

noreply@blogger.com (Ili) — Tue, 09 Apr 2013 21:43:00 +0000

Bass on Japan:

"I actually think it's the beginning of the end... When you have 20 years of pro-cyclicality of thought manifesting itself in the way that it has in Japan…I am not naive enough to think I can predict the end of a 70-year debt super cycle with any kind of precision, but looking at the changes in the qualitative perception of the participants is something that I think is key to the situation and we saw a big change on Friday."

"When I started sharing our views more globally it was the middle of 2010 and I said I believe the stress would begin to show itself in the next three years. Pretty much three years in, we're close, and the stress is beginning to show. Maybe that was luck at the time, but now when you ask the timing--look everyone wants the crystal ball and it's really difficult to predict this, but what you can do is follow where I think the stresses are going to show in the marketplace, but more importantly, you have to get into the heads of the participants because they all have a collective sense of fatalism. When you do the quantitative analysis here, you know they are insolvent. Everyone who owns the bonds knows they are insolvent. It's a question of how long they can hang on. What changes their views are a multitude of variables, but it's really important to follow any change in those views. When you see things like Argentina, Greece, Cyprus, Ireland, Italy--you see how fast things go from perfectly stable to completely unstable. In this case I think it will happen more quickly because of the 20 year buildup."

On Hayman Capital having strong performance overall when it has a trade that, even if it's right, takes a while:

“When we think about the globe, I think about positioning. When you invest in a fiduciary like myself or someone else, you want someone that has the courage of their convictions. You want someone that is not particularly dogmatic. And if they are, you want to think about risk management. It is really important to size things properly. So far, knock on wood, I think you have to be as thoughtful as you can possibly be on the construct of the position and not set yourself up for many years of losses until something like this happens.”

"It's really important to think about the capital at risk in your strategy and the construct of how you put these kinds of hedges into place. We have 90+% of our money is long--long U.S. structured credit, U.S. mortgages, U.S. stocks--the majority of our capital is long."

On structured credit and the importance of being very liquid in the long side:

“Believe it or not it's really liquid right now. With Bernanke pinning rates at zero and the entire world continues to chase yield. Our indices are being led by utilities and things that don't particularly lead us into new highs, it's because of their dividend yield. So the whole world continues to chase yield. Structured credit and even mortgage credit are one of the most liquid areas in the marketplace today. People can't get enough of them. Even in subprime credit, 97% of the 20,000 line items are still rated below investment grade. They're still junk. The ratings-based buyers aren't even there yet. The money is being misallocated by the printing press."

On gold:

“We have always had a position in gold. When you think about the largest central banks in the world, they have all moved to unlimited printing ideology. Monetary policy happens to be the only game in town. I am perplexed as to why gold is as low as it is. I don't have a great answer for you other then you should maintain a position.”

On George Soros' recent statements that he’s losing interest in gold:

“George has been a much better investor than I over the years. When you think about the global monetary base, it is north of $70 trillion. All the gold in existence is around $7-8 trillion. There might be $1.2-1.3 trillion of investable gold. At some point in time, I would much rather would own gold than paper. I just don't know when that time is.”

On whether he'd rather own gold than U.S. treasuries:

“I do. If something happens in Japan like we think it is going to happen, I think U.S. Treasury nominal yields will go negative in a flight to quality. maybe gold moves up and Treasuries actually get much stronger for all the wrong reasons, not as an endorsement of U.S. fiscal policy because it is the only place money has to go... If monetary policy is the only game in town, we are all in for a world of trouble. That is the way we see it.”

On residential mortgage-backed securities:

“That investment is working... The various concentric circles surrounding housing not getting worse, which is how we think about it. We are not expecting it to get materially better, just not to get worse. The services sectors, the new mortgage insurance companies, the things that are actually asymmetric investments you can make around the housing market not worsening are where the majority of our long side of our portfolio is.”

On the future of Fannie and Freddie:

“I have no clue... We decided to just exit, thinking about them when you meet with both sides of the aisle, they both want a bullet in their head. Typically when that happens you get a bullet in your head. The second thing we were thinking about, if you remember there was a proposal to start raising the g-fees. There is a way for the U.S. Treasury to get paid back all of the money they've pumped into Fannie and Freddie if they start raising g-fees."

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass: Japan About to 'Implode' Under Debt

noreply@blogger.com (Ili) — Fri, 05 Apr 2013 18:25:00 +0000

Transcript: Thanks a lot, rick. rick and mohammed. welcome back david. i didn't know he was a mets fan. oh, yes. we've been talking about this historic move by the bank of japan targeting the monetarymove, anyw certainly it's been one of the more vocal voices. can you be a vocal voice? i guess you can. japan is eventually going toreach this point. the interest costs will exceed the tax revenues, and i would just love to simply get your take on the latest move and what your thoughts are about what they're trying to do, which isessentially engineer at least 2% inflation. i think it's really importantto understand the magnitude of what they're embarking on. it's essentially doubling the monetary base. and to listen to mohammed just a second ago talk about it is a giant experiment.doubling the monetary base in two years is extremelyexperimental. but when you're backed into a corner, and your debts are more than 20 times your central government tax revenue, you're already insolvent. it's to the point that mohammed made.they have to do something. they have to do something big. because they are about to implode under the weight of their debt. what is interesting to me is they also abandoned the bank note rule. they had a handshake with them. they would not moetize the debt. they got to a goal post, and they removed it. when you think about themagnitude of what they're doing on ha nominal basis, the goe will be buying assets at 70% of the rate of the u.s. fed on an economy that's that's one-third the size of the u.s. just to put things inperspective. well, to the extent that you have said for some time that japan is already in the zone of unsolvency. is this goi to change the dynamic or the trajectory? yeah, i think what they havedone is formalize the announcement that a new sheriff is in town.it's important to follow the bond markets. there are economic zelouts running the central bank. they only know one thing. in this case the trajectory is set. what they're trying to do is materially devalue the currency in order to become slightly more trade competitive while attempting to hold their rates marketplace flat.the econolis besteve they can live in that nirvana, and that is not the case. you also play that in part by belief that the value of thecurrency would go down. it's going down more than it has since october of 2011. do you continue to approach this in the same way and tell the viewers how you go about trying to benefit from the series of events that are trying to occur? if you're japanese, you need to spend the yen that you have. you're not going to suffer amassive depreciation in your purchasing power. if you're non japanese, go borrow yen and buy assets in other countries not as fiscally stretched as yours is. there is really no great prescription here. i think it's really important to not be long yennd long japanese assets. there are people that earn equities in this response toweaker yen by equities. you have to remember the japanese industry has been hallowed out over the last 20 years. so i think it's going to be very disappointing for the equities. i think they're macro tourists. even with what will be increased -- conceivably increased exports? maybe we'll get the start of a trade war, but i would imagine it would be good for the toyotas and hondas of the world.expecting that today. people are focused on dollar yen. they lost the trade deficit to korea. the next thing you'll start to see japan talk about is buying foreign bonds. and i think they need to set thearchitecture up to enable them to do so. when they do that you'll see a trade war. that's the next step that you see out of the doj.but you have to think about where their trade is loss lost? you generate inflation. you get real velocity of money. you get an economy starting to grow and generating higher tax revenues.when you have the declining population and the death rate across the birthrate and a hollow out of industry, you may get a bump in nominal gdp and with the looming tax inkroes in april2014, they'll pull forward some consumption this year. but it's important to focus on the fact that this is not the panacea that everybody hopes it will be. i hope i'mut this. i can't imagine when we look at -- let's say they're trying to get to 2% nominal inflation, 16% of gdp is imports.they have to get the yen to the dollar by the end of next year. so that's our target. but if they lose control it's going to be much weaker than that. we are in unchartered territory, are we not? we are. the central banks around the world are kreaing tents andvillages that are very difficult to invest around. very much appreciate you offering insight on a historic day. right before i let you go you have benefits this year from this strategy that you had in place for quite some time, correct? he made a good amount of return on this japanese investment, or your point of view, your thesis this year. so far. all right. so far. kyle bass, thank you.

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass Presentation

noreply@blogger.com (Ili) — Wed, 13 Mar 2013 08:52:00 +0000

Kyle Bass, addressing Chicago Booth's Initiative on Global Markets last week, clarified his thesis on Japan in great detail, but it was the Q&A that has roused great concern. "The AIG of the world is back - I have 27 year old kids selling me one-year jump risk on Japan for less than 1bp - $5bn at a time... and it is happening in size." As he explains, the regulatory capital hit for the bank is zero (hence as great a return on capital as one can imagine) and "if the bell tolls at the end of the year, the 27-year-old kid gets a bonus... and if he blows the bank to smithereens, ugh, he got a paycheck all year." Critically, the bank that he bought the 'cheap options' from recently called to ask if he would close the position -"that happened to me before," he warns, "in 2007 right before mortgages cracked." His single best investment idea for the next ten years is, "Sell JPY, Buy Gold, and go to sleep," as he warns of the current situation in markets, "we are right back there! The brevity of financial memory is about two years."

Click the image below for the full presentation (unembeddable):

Starting at around 50:00...

Bass On Immigration Reform in Japan - hailed as a solution to the demographic problem - Bass says "Ain't gonna happen. They need wage inflation and this will not encourage that. It's an untenable situation." Summing up his whole view on Japan - "I just don't think it can be fixed."

Question: When you look today in the capital markets at the tactical asymmetry that exists among the various financial instruments to take advantage of cheap optionality - what is that instrument?

I'll give you guys a bit of an idea... we don't talk about exactly what
we do - we tell you how much we love coke but we're not gonna give you
the formula.

The AIG of the world is back - I have 27 year old kids selling me one-year jump risk on Japan for less than 1bp - $5bn at a time.

You know why? Because it's outside of a 95% VaR, its less than one-year to maturity, so guess what the regulatory capital hit is for the bank... I'll give you a clue - it rhymes with HERO...

If the bell tolls at the end of the year, the 27-year-old kid gets a bonus... and if he blows the bank to smithereens, ugh, he got a paycheck all year.

We are right back there! The brevity of financial memory is about two years.

I wouldn't sell nuclear holocaust risk in Dallas for 1bp - you should be fired for thinking about selling something for less than 50bps.. and yet - this is happening again...

And it's happening in huge size - huge - we bought half a trillion dollars worth of these 'options'...and interestingly enough, one of the biggest banks in the world called me the other day and asked me if I would close my position - that was an interesting day for us - that happened to me in 2007 right before the mortgages cracked.

They said "we ran some new risk tests," and I said "really?"

"Yeah, the new stress scenario is a little more punitive than the last one."
"What is it?"
"Well, we don't wanna share our proprietary secrets"
"Ok, then I am not closing it",
and they said "woe woe woe.. in our old model rates stressed 50bps, in the new one they stress 400bps"
"Yeah, that would really hurt wouldn't it".
"Yeah, we'd like to close that one"
"I'd like to but I am not going to do that for you"...

The point is - Why would they run a stress test like that? They are starting to realize! Who would have them run that stress test. It's happening again.

Question: Do you buy guns, gold, neither, or both?

I don't get paid to be an optimist, I don't get paid to be pessimist, I get paid to be a realist - and a prudent fiduciary of the capital, and then if i have time I care about the social issues of the world.

If I am right, the social issues are going to be very difficult. I don't think we devolve into anarchy and I do think the payment systems will continue to work but what they will pay with will be wumpum...

We will go thru a period where its a little tougher...

We went through a period where it was briefly tough and now there are 1400 new billionaires in the world - maybe some capital was misallocated...

Question: Which one investment would make for the next ten years

I would buy Gold in JPY and go to sleep... Sell JPY, Buy Gold, Go to sleep, and wake up ten years later and you'll be fine. Don't put all yourr money in it but that is the single best investment you can make today.

(h/t Steve M) Source: Zerohedge

Hayman Capital Says Japan on Edge

noreply@blogger.com (Ili) — Sat, 02 Mar 2013 15:29:00 +0000

Richard Howard, a Kyle Bass colleague believes that Japan is rapidly moving towards inflating away its debt.

Richard Howard of Hayman capital believes that market re-pricing of Japan’s debt and a devaluation of the Yen could happen sooner rather than later.

“If you think of where the most interesting shift in dynamic has occurred for the last three month, it’s in Japan,” says Howard, managing director and global strategist for Hayman Capital.

“It’s important for people to understand how bad the economic environment has been in the last five years,” says Howard who points out that virtually all major developed economies have seen a rebound in economic activity from the troughs of the last financial crisis. Japan has not.

Previously, Japanese exports were relatively strong, which allowed the country to maintain a current account surplus and accumulate $1.1 trillion worth of U.S. treasuries as foreign exchange reserves. This has shifted since the financial crisis. “The Japanese absorbed an enormous amount of the world currency debasement and exported deflation over the last five years,” Howard says, and explains that the aggressive move by other central banks to ease monetary conditions after the crisis cheapened their currencies and made Japanese exports less competitive.

Korea, which devalued the won in response to the crisis is an example. “A lot of Japanese exporters and Korean exporters are now chasing the same customers,” he says, with Japanese firms being on the losing end of that competition. Indeed, according to the IMF, the Japanese current account balance shrank from 4.9 percent of GDP to a projected 1.6 percent of GDP in 2012.

The reversal of these supporting factors makes Howard believe that a final re-pricing of bad Japanese debts will finally happen in the near future. Despite a collapse in the value of equities and real estate over 20 years, debts accumulated during the credit bubble of the 1980s are still lurking on the balance sheets of banks and corporations. Despite the price drop in the value of collateral, they have not been written down.

“The value of the debt has already been crushed. The losses have already been incurred through the mal-investment of that capital. All that remains is to realize it. Either it gets realized through inflation or it gets realized through some sort of debt restructuring or write down,” says Howard.

RIchard also thinks that the government’s debt accumulated in a bid to prop up the banks and the economy is unsustainable and will lose in value. Major pension funds have announced that they will start selling Japanese Government Bonds (JGBs) in order to provide retirement income for an ageing Japanese population.

This leaves the Central Bank as a buyer of last resort.

“We’ve moved into a world that is more comfortable with the concept of truly aggressive monetary easing,” says Howard who thinks that the unlimited monetary easing that the Bank of Japan (BoJ) announced in January 2013 is a game changer.

“That is a sort of unorthodoxy and aggression that we haven’t seen previously. It’s a question of scale and scope,” he comments on the BoJ’s plans to buy $145 billion of government securities per months starting in January 2014 in order to reach a 2 percent inflation target.

While 2 percent inflation sounds relatively innocent, according to Howard, it will be enough to cause people to sell JGBs and the Japanese Yen in his opinion.

“You could see a big sell-off there as people migrate out of those assets because we don’t believe that there is a natural buyer out there in this new inflationary environment… with bonds at current yields were they are,” says Howard. Investors want to be compensated for inflation to earn a real return. In order to get that real return, nominal bond yields will have to rise.

“The problem with trying to create inflation is that debt is going to be harder to service. The hope is that the inflation creates enough nominal growth to enable the higher debt service costs. That makes sense for a portion of the economy that is not highly levered and can afford to service their debts,” explains Howard.

“The policy makers who are overseeing this process, they are convinced of the correctness of their views. Lots of experts out there will tell you that a government can never go bankrupt if you have a compliant central bank out there that can always buy your debt. As long as the BoJ cooperates there will never be a problem,” says Howard.

“We expect the Yen to devalue from here and we expect interest rate to rise in a sharp sudden fashion at some point over the next couple of years,” says Howard.
And this time Howard might prove right as Mr Abe, nominated Haruhiko Kuroda as Next Bank of Japan Governor.

Japanese Prime Minister Shinzo Abe nominated Asian Development Bank President Haruhiko Kuroda to lead the nation’s central bank, raising the likelihood of further monetary stimulus this year.

Kikuo Iwata, a professor at Tokyo’s Gakushuin University who advocates greater government oversight of the Bank of Japan (8301), and BOJ Executive Director Hiroshi Nakaso were nominated for the two deputy governor positions, the nation’s parliament said in a statement today. Current Governor Masaaki Shirakawa and his deputies will step down on March 19.