Kyle Bass: One Smart Man

We have been catching sight of Kyle Bass in a number of video interviews lately. We are grateful for whatever opportunity we have to listen to him. He has the straight goods and his explanations are not complicated. We inquired of getting more information from the hedge fund he manages but lack the $5,000,000 minimum entry position. So here as we find them:

  • 20130523: CNBC
  • 20130118: CNBC
  • 20121222: Unfortunately we cannot embed this video but but clicking on the date to the right will launch it in a new window. Key points are:
    • Total global credit market debt over the last 10 years has grown from $80 T to $200 T to 340% of global GDP. This ends in war.
    • Expect several large wars over the next few years.
    • Over the last decade, debt has grown at 10.7% annually, population at 1.2% and GDP at 3.8-3.9%.
    • Europe has not recapitalized their banks whereas the US has.
    • Past wars occurred when debt to GDP gets to 250% wars have broken out. At 350% we have no idea what will happen – new territory.
    • CB balance sheet expansion is causing inflation. It will be expansion from here on in.
    • When debt becomes 20-25 times tax revenue, trying to inflate your weigh out blows up the system because the debt costs increase exponentially while tax revenue increases linearly.
    • Rogoff showed cycles of sovereign restructuring occur every 70-100 years. The last one was before World War II. Expect to see social unrest going forward. Optimism bias has it happening elsewhere.
    • Expects economic activity disconnects and crises in the next 2-3 years (Japan will be a big one) but the government will not tell you in advance.
    • “Their [politicians and central bankers] job is to promote confidence. It’s not to tell you the truth.”
    • He quantifies Japan’s economic problems.
    • “The periods of time that we’re now entering will be punctuated by enormous cross-border capital flows.” People will not know what country to put their money in.
    • Going forward, Asia is going to be a real problem.
    • When the Japanese credit account goes negative or when the eurozone periphery restructuring begins – these are signs of the end of japan.
    • The administration appears to be getting ready for some form of principal forgiveness through the GSEs.
    • Serious debasement of the currency and hyperinflation just take time.
  • 20111214: From CNBC: For Europe, Only Way Out Is to Break Up: Kyle Bass (11:07 minutes). Capital flights in Europe are signalling default. The European central banks will print post-default since it doesn’t make sense to do it and then have the money devalued. $2.6 trillion of debt in the eurozone has to be rolled over next year. There aren’t any buyers including a buyer of last resort so next year it will be a solvency problem. Zero Hedge notes his comments 9 minutes 30 seconds into the interview where he touches on hypothecation (a topic we are currently exploring) and “shortening collateral chains.”

 

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