"Detonating The Japanese Debt Time Bomb" With Kyle Bass

Tyler Durden's picture

The hyper-correlation of Japanese stocks and the JPY have led many to believe that Abe's miracle promise will be just the ticket to bring the nation's two-decade slump to an end - a 2% inflation target is all you need. However, in a brief CNBC interview, Kyle Bass explains that not only are 99.9% of people wrong about the crisis (explaining the critical aspect of the abrupt turn of twenty years of the 'procylicality of thought' - that deflation is the norm), but Abe's actions have actually brought forward the date of the "detonation of Japan's Debt Time Bomb.

It is the Japanese institutions that own JGBs and they own them at meager rates of interest simply because of the ingrained belief in deflation; when the government begins to target 2% inflation, the swing in forward expectations (he notes to monitor inflation swap breakevens) will be the trigger for Japan's implosion. Bass warns that "Japanese debt is around 24x central government tax revenue and when you sail into the zone of insolvency, nothing you can do will help," though he realizes that calling the end of the 70-year debt super-cyle to a specific date is naive, he does expect the 'bomb' to explode within 18 month to two years.

All of the components for this [bomb] to go off 'all of a sudden' are in place. The clock has started on the qualitative shift in participants' minds that the situation is untenable as the realization that Japan spends 25% of revenue on interest now - and with higher rates (via this supposed inflation) the entire situation becomes farcical as every 1% rise in their cost of capital (or rates) costs them another 25% of revenue!.


On JPY devaluation - The signs are already there that elites are exiting the JPY - with recent M&A transactions - he warns. 20% of exports go to China; this could be halved given the tensions, and a JPY devaluation is not going to restore the competitiveness of that secular decline.

On Japanese stocks - The people buying Japanese stocks, are picking up dimes in front of a bulldozer.

Bass goes on to discuss the US Housing stabilization, European stress, and China's economic opacity.


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brak's picture

I beleive the correct term for Abe's plan is financial seppuku

fonzannoon's picture

he is long housing IMO because he feels the US is further down the road from what Japan and europe is dwaling with now. I wonder if Bass suffers from the same "optomism bias" he seems to point out in others. 

surf0766's picture

That is what I do not understand with the housing pic.. Is he just picking the most polished turd in the pile? Are we now giving obama phones, and houses to the ebt class?




fonzannoon's picture

Bass is like a Schiff/Gross combo. like BG he is buying mortgages and frontrunning the fed and like schiff he said it won't be treasuries that blow sky high it will be the currency. funny how the cnbs guys and their Germany gold conspiracy steered clear of asking Bass about how he had UT take delivery a few years ago. 

Bass just makes me wonder...he seems to think the US has a ways to go before our Greece/Japan moment. that scares the shit out of me.

Dr. Engali's picture

I can't speak for the rest of the country, but I can tell you what's going on around here. House prices continue to deflate and financing is getting even harder. My wife is in real estate and according to her if its not FHA it's not getting done. She manages the operating system that tracks all the houses coming on the market and those that sit vacant and she tells me that the number on the market continues to grow, and they are sitting longer.

WmMcK's picture

... if its not FHA it's not getting done ...

She doesn't do any (0% down) VA?  What, too much paper work?

Dr. Engali's picture

She doesn't do the paper work that's up to the bankers. She is stating what's closing and what's not. Maybe there aren't a lot of VA loans applied for around here.

WmMcK's picture

Sorry, as a vet, I overreacted on that one.

Dr. Engali's picture

No problem, and thanks. I've been known to do that once or ten times myself.

in4mayshun's picture

Same in my area, FHA or cash and only in the $100,000-200,000 area. Anything higher is not selling. The cash buyers are moving out of .17% CD's and hoping they can turn some positive cash flow from renters But guess what a renter has to have to make this work?

1st correct answer gets a gold (tungsten filled) star!

Cathartes Aura's picture

pile in the whole family, 3 generations to a house, and get Section 8 to fund the land-lording.

seems like a plan for some. . .

bigrooster's picture

That is why Kyle is long PMI companies.  He knows that almost all homes being sold have it because it is required for a FHA loan.

wisefool's picture

The Mandy component is from 7:23-7:33.

kareninca's picture

What part of the country are you in, Dr. Engali?

I watch house prices in Connecticut and Rhode Island.  They keep going down, and I really see no demographic or economic reason why they shouldn't keep going down.

Dr. Engali's picture

I'm in Indiana. Close to the Ohio border.

azzhatter's picture

Doc, you get props even for where you live!

surf0766's picture

@fonz , that long way to go scares the crap out of me too.  It is almost a weekly event where someone is getting let go at work. Contacts being lost or not renewed.

Sales down revenue down.



fonzannoon's picture

what scares me more is enslave's example of the one guy with the checkbook that buys everything posted above. that is pure evil and i can believe it is happening. somehow i hope people come together and punch the bully in the face.

secret_sam's picture

That bully guy has been securitized and cut up into tranches.  The tranches can be viewed through 'Merkin demographics.

tradewithdave's picture

Coming together and punching the bully in the face (even cyber-punching) would be considering "bullying" and "bullying" is being outlawed and with it free speech. 

Mike in GA's picture

But look at the dollar.  Still high, relatively speaking.  Not only no collapse but any little squiggle in Euroland or Japan and the dollar leaps skyward. 

My understanding of Kyle's thesis is the dollar will be the last domino to fall. 

Japan's debt svc is 25% of their revenue, ours about 10%. 

cranky-old-geezer's picture



But look at the dollar.  Still high, relatively speaking.

Yes, relative to other sinking currencies.

But USD has lost 50% of it's value in the last 5 yrs.  From 97% total loss to 98.5% total loss.

You don't see it next to other currencies losing similar purchasing power.

But you clearly see it next to gold, silver, bread, eggs, gas, etc, that can't be printed on a press.


Seer's picture

Japan's situation is slightly different in that it's population isn't dead broke.  Govt might be, but the population can/could cover.  For the US it's PUBLIC and PRIVATE sectors that are broke, no real way to clear the debt.  Granted, in the long-run Japan is more fucked because it's an island nation that is highly dependent on energy imports (the US has energy, though it would, at current consumption rates, burn through it- Japan's conservation option looks more like "doing without").

jmcadg's picture

Bass was right to take UT delivery, but dead wrong to keep it stored with HSBC .... aaaaaaaannnnnnndddddd it's gone.

Seer's picture

Stored with HSBC, really?  If that's the case- WOW!  But then again, where would one store gobs of gold? (an international bank could, in theory, protect against any particular govt seizure, though it would pretty much kill its operations in that govt's country).

cranky-old-geezer's picture



The real housing situation doesn't matter.  Housing debt securites (MBS) is what matters, and Fed will keep buying 'em to keep their price up, regardless of what happens in the real housing market.

The gap between the fantasy paper world and the real physical world is getting wider, and MBS are a perfect example of it.

Blues Traveler's picture

Kyle's short performance swings significanlty from month to month but overall the average has been a negative carry trade.  Carry trade's cost increase when the trade turns negative, the more negative, more the cost.  The carry cost explodes when the position is 10 x leverage.  The trade is in trouble, so he is forced to play poker, he needs something to happen soon bc the carry and the roll over is kicking his ass.

Blues Traveler's picture

Kyle's short performance swings significanlty from month to month but overall the average has been a negative carry trade.  Carry trade's cost increase when the trade turns negative, the more negative, more the cost.  The carry cost explodes when the position is 10 x leverage.  The trade is in trouble, so he is forced to play poker, he needs something to happen soon bc the carry and the roll over is kicking his ass.

WhiteNight123129's picture

Good points, but here is the solution.

Short Japanese bonds and Long Japan Tobacco, tobacco shares will increase dividend even in deflation, and if you have hyperinflation tobacco sharex will trounce bonds. You have positive carry while waiting and now currency risk.

WhiteNight123129's picture

Now if the local institutions have redemptions and the Japanese spend the proceeds on goods and services how much do the nominal tax revenues rise?


bigrooster's picture

Always the smartest guy in the room!

Miss Expectations's picture

The priest collar kind of suits him.


ZeroAvatar's picture

Doug Short shows with charts how the current cycle is 48% above trend line:




Not only is the S&P going to lose the 48% (back to trendline), it will then proceed to wring out the excesses of all this printing.


I've decided, that, if I still had possession of that silver before the tragic accident, If spot gets up to $38, I would unload.  It would have been nicely in the money.  I'm certain the hammer is about to fall.  When it does, silver goes down with everything else, and it's ALL GOING DOWN HARD. 


Since I'm now broke due to the accident, maybe I can scrape up a few bucks from relatives to buy in around $20.  That's my story and I'm stickin' to it.

fonzannoon's picture

U drop the market 48% and we are in a depression that even CNBS can't deny. The rest of the world sees blood in the water and dumps their dollars on our broke ass heads and buys PM's on sale for a very short time because if si;ver eagles are out of stock, good luck finding them then. After that it is blast off time for PM's as the reserve currency kisses it's ass goodbye.

CPL's picture

Shortages effecting electronics markets would beg to differ, but to each their own I suppose.


I get my price for silver or you don't get a gadget, that's fair.

ZeroAvatar's picture

I know you'll think I'm full of it, but I sold my Phys Silver holdings in 2011 just before the blow off.  I started selling at 42.50, got that and 44, 46, at which point I was out.  I even had to call the cops on my 'broker' because he wouldn't return 3 10oz bars. 


I've been patting myself on the back ever since. Right now, I'm getting those same feelings.  Sure, I'd LOVE to hold to $150, and I Sure do believe it will make it there, but I got a bad feeling about this upcoming crash and I'm not gonna get left holding the bag like a lotta people did in May 2011.

Take ANY profits NOW, live to play another day.  We are close. We'll be LUCKY (IMHO) if we reach $38-40 before crash.


Edit: (Crash 1st, Then $150)

WmMcK's picture

"I started selling at 42.50, got that and 44, 46, at which point I was out."

I started trading for Au and Pt at ~44, for more at 46, at which point I was re-balanced.

Back to Ag at ~ 28.50 (GSR ~57).
And just caught Pt to Ag at ~ 53,
but my timing may be a little off again.

Damned if I'm getting caught holding mostly FRN's, though.

CPL's picture

I would like to add to the pile, but there is no supply to justify the severe drop so I believe anything offered will be as legitimate as a 18 dollar bill in terms of cash value.


The attempt has been made repeatedly to shake the branch of weak hands holding physical silver.  Any minor price variation and the news chants sell to deaf ears.  The fact is now the world really needs silver if it wishes to carry on with the self destructive idea of fifty gadgets in every home and six for every child.  Eventually someone will understand all those drones that are on preorder can never be built with the lack of silver in the sauder.

It makes a huge difference which sauder is used.  

Tin Sauder = 1 dollar RC toy that might react to standing right next to the toy and gunning the trigger.

Silver sauder = 5000 dollar serious amateur RC fanatic that do miles of POV flying with control decks that cost as much as a good used car.


Quality counts for everything in electronics.  Get cheap, expect results out of scope of the original design.

This should explain the difference in quality to allow everyone a better picture of a silver shortage.  


bilbert's picture

Ummm...............  by "sauder", do you mean "solder"?

I've never heard that term.


CPL's picture

Voice recognition and silver lined modern technology showcases on one of the aforementioned fifty gadgets.  Corrected my dictionary.   Solder.  solder.  SOLDER.  sauder...crap dragon dictate, never change.  Awesome.

Mike in GA's picture

I think I musta bought some of your silver Zero. :( 

I thought it was the 'blast-off'.

A Humble Man's picture

In a way I would be happy to see another silver crash.  I would cash out some of my stocks and buy more physical with my pieces of paper.

Seer's picture

PMs never seem to go to zero.  Fiat, well...

The age old adage for investing is to never hold all your eggs in one basket.

Aurora Ex Machina's picture

Hmm. Lessons from a small Island: if you want to be a global player, have a big Navy. [See further - Korean invasion of Japan].


#1 Japan <> China aggro over that small island cannot be based on anything but American pressure; they don't have the muscle to back it up (Durrr: what are the German and Japanese economies based on, if not small militaries)

#2 If you're a small Island (in the middle of an ocean), look to energy self-sufficiency - well, we all known what's happened in the last few years. Add into that food security etc.

#3 Population shifts + Sociological Stasis = break point. 35% of herbivore men? Good luck with that.

#4 Never be on the BG list. Japan is really not on the breeding / acceptable list, and expect it to crash. Quote: "They treat their women terribly, why should we save it [their society, for reference]?" If you want to correlate successful societies with gender roles, we can do that. But.. I wouldn't put my money on the Salafists either. Not anymore, anyhow, and I endorse that. Full moon rising, hmm?

#5 Bass is spot on, but for the wrong reasons: Japan has been allowed to wind down nicely; the last remaining vestiges of Bushido might crash it sooner, but otherwise it's done. Japan has a calm centre, and will adjust to the new normal of pastoral living easily. Trust me on that.


#6 iSmartGlass - that was news about 6 months ago... derp.

CrashisOptimistic's picture


Pretty much all of this analysis fails to start and end at the correct point, which is oil.

A Japan currency smash results in instant starvation.  They Have No Oil.  If their currency is shit, no one will sell it to them, and they starve.

This plays out everywhere.  If you have oil, you're not going to sell it to ppl who want to pay with smashed currency.  Hell, a lot of oil exporters are ramping up their domestic consumption so rapidly that they'll have a credible excuse not to sell.

Forget the BS about US energy independence.  It's silly.  We import 12 million barrels every time the sun rises in the east.  If that stopped, so would eating.  If our currency smashes, your gold doesn't make you king.  Everyone starves.  Starvation is an equal opportunity killer.  Your gold does nothing for you if trucks can't bring food to shelves.

akak's picture


Did the Argentinians all starve when their currency collapsed in 2001-2002?  

Did the Zimbabweans all starve when their currency TOTALLY collapsed in 2008-2009?

Did the Russians all starve when the ruble collapsed in the 1990s?

Did any Latin Americans starve when their currencies collapsed (Brazil's FOUR times!) in the 1970s, 1980s or 1990s?

Yes, there was a LOT of pain and suffering during each of those currency collapses, but society survived and moved on.  To equate the end of a monetary regime to Armageddon is pure bankster fearmongering propaganda, and it is both historically ignorant and intellectually insulting.


Aurora Ex Machina's picture

Very good point. Although, yes, some people did starve.

I'm guessing your basic point that is that if the Global Petro-Dollar crashes, you'll get localised-level currency conversions happening fairly quickly, even if they are created at the local level while chaos reigns?


Can't say I can argue with that - life goes on, muddle, inefficient and open to corruption? Sure. But you're 100% correct: life will go on. Complexity is merely arrangement, after all.

akak's picture

I tend to agree with you here Aurora.

Make no mistake, though --- the collapse of the world fiat monetary regime will undoubtedly be very painful and very brutal, most likely worse than any of the individual national currency collapses that preceeded it.  Life will be VERY different for most of us afterward.  But at the same time, I think many tend to underestimate human ingenuity in the face of crisis and practical necessity, especially in these dark times when overwhelming pessimism is so easy to fall into.