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Kyle Bass Warns "The 'AIG' Of The World Is Back"
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):
The main thrust of the discussion is Bass' thesis on Japan's pending collapse - which we wrote in detail on here, here, and here - and while the details of this thesis should prepare most for the worst, it is the Q&A that provides some very clear insights into just what is going on in the world.
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 @EquityAnalystNY)
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Avoid the Noid
kyle doesn't want a cancer injection, that's all.
Bass has a dog in the Japan fight, but he talks Japan mostly because he sees them going first, even before Europe goes. Japan is the domino.
Kito, Bass was asked a question:
"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?"
How is answering a direct question talking one's book? If I'm asked a question about how I hedge the future, I reply that I buy gold. I own gold. Is that talking my book?
Just askin'....
"Fix" does not equal "repair".....
As in: "The fix is in"
Thanks for the highlights TD.
I'd do most anything to listen to Kyle Bass except
Install Microsoft 'silverlight'
All I can say is the Fed has already engineered and incredible real estate recovery.
The engineering was almost perfect..
Instead of having every upside down property dumped on the market at once.
They gummed up the works with very slow short sales and very few really good loan mods.
They lowered rates making homes far more affordable.
They gave people 97 percent loans.
They engineered tax credits at the nadir.
And now... its looking to me like they are going to have to hold back price appreciation to avoid a bubble.
I have learned to never underestimate the power of the Fed.
They did an unbelievable job prevent the collapse of real esta
you and Krugs are correct. They have engineered it. But since that is the case, how can the fed pull back? They can't, you know that. How can they permanently keep rates supressed? I just don't see where the growth demand will come from to allow the fed to withdraw.
Krugs. They are never going to withdraw, are they? Where will the growth demand come from, that will allow them to turn off the spigeot?
Cue theme from 'jeopardy'
Please give your answers in the form of a question.
Can someone explain to me what 1 year jump risk for a bp is? I assume it is a 1 year cds contract, but am not certain. Any fellow zerohedger care to explain this? Tyler?
"Buy Gold, Sell Yen, and go spearfishing" I know how to buy gold (though my vessel navigation skills are rather subpar). Can someone explain to a dog food eating senior citizen how to "sell yen"? Does he mean short and how does an old, feeble retail investor do that?
The most direct and easiest way is to set up a retail 4X account and buy USDJPY (which means you are buying dollars and selling yen at the same time...). There are many brokers out there but personally, I prefer IBFX. They are owned by TradeStation and are as straight-up as I've found in the business that is full of sheisters.
There are also inverse ETFs that will trade but you're never really sure of what you're getting with those.
Try 4X. Once you go 4X and futures, you never go back.
:D
http://www.ibfx.com
You can even open a "demo"nstration account with fake money to see how it works for you. There's lots of tutorials on the site to get you started.
And, by the way, you can also trade gold against US Dollars on the same account!
Good luck, Granny!
Why thank you very much young lady! That was very sweet of you. Granny is gonna whip up some of her special "brownies" using ingredients from her secret garden and send them your way!
And may I say, don't get caught up in the rigamarole. Just trade what you see and you'll be fine.
All the best to you, too.
:D
try saxobank, my favorite
You can buy XAU/JPY in a retail FX account. Just don't get Corzined.
Granny, I bought FXY Jan14 95 Puts five weeks ago When FXY was 104... currently at 102.
I'm looking for 400-500% (minimum) return in the next 8-9 months.
I'll give it a whack. Open to criticism or correction.
Jump risk is essentially the gap between perception and reality for a sudden default scenario. So many institutions believe that there isn't any risk, they are willing to sell CDS or other OTC products for very small price. Kyle knows there is a huge amount of non perceived risk and is buying lots of protection for cheap.
Here's a model if you are interested.
http://users.iems.northwestern.edu/~linetsky/JDCEV.pdf
I'm certainly not there yet.
how do I short the bank who sold him the options?
It could be an insurance company...
Probably JP. They're the ones with the bad VAR spreadsheets.
Some time ago, ZH published a chart that showed who do Countries owe money to. And it was funny, real funny since they owe it to each other, round and around. Thus, if Japan is screwed so is the rest of the G7, there is NO way around it. You can't isolate it at all and I am not talking about derivatives but of collateral supporting major debts. It is just no there, if you pull any thread the whole fabric will dissasemble.
Remember that thanks to QE we are living in a metastable economic and financial system. Any black swan event will trigger a debacle since the little trust that is left will dissapear into thin air in a whiff.
Until next time,
Engineer
it's not because of QE... QE is a symptom, not a cause. The cause is credit money loaned into existence... and math.
You are correct, I only use QE because I've found that it communicates the "creation out of thin air" aspect of what is going on best to most people.
Yes. Everything will be done to rescue Nippon. There's a contingency plan already on the table. Fed heads aren't so cock sure as they were in07-08 when "the market " was going to cure everything without massive intervention
Now you are finally seeing the point I have been pondering since 2008.
If everyone owes debt to everyone else, a round robin debt cancellation would net out even for all. Japan owes Germany, Germany owes Canada, Canada owes Mexico etc. A global debt cancellation - I am relatively sure they will pull that out of their hats when the time is right to save the day. The only huge loser would be someone like China and that might lead to war if done. However, China still needs the rest of the world to pawn their crap on so they will likely talk big but play game.
Bbbbbbbbbling!
I suspect that to avoid a war with China, China was given a word way ahead of everybody else of what the FOMC was going to do with rates (2009/2010) so that they could enjoy the capital appreciation of having their savings in US treasuries go down in interest rate from 5% to close to zero now. Since then China has been a net seller of Treasuries and the Fed has been dutifully buying what they sell. Up to now these are known easy to prove facts. Now to the speculation, people in ZH have been reporting over and over that there is an overt transfer of physical Gold to China from the US. Furthermore, to cover that lack of physical gold, it seems that they have a tunnel that communicate the two vaults (that are on the same level and only feet away) with a superfast conveyer from the US Treasury to one of the major banks in NYC. At the same time they have been repossesing the same gold multiple times and using it as collateral ad-infinitum. The rumors got to be so believable that Venezuela's Chavez brought his gold back to his Country, and recently Germany requested the same thing...
If only a small part of this is true, it explains why China would accept what will happen soon. You can also guess that the ones that will not accept what will happen are the people that don't understand or are prepared for what is coming, since it will be perceived as a great injustice and very unfair. Sadly that would explain why homeland security is byiing thousands of tanks and billions of rounds of ammunition, why they want to be able to use drones inland, why they have changed many laws, crearly not written by their sponsors (tons of writing style analysis to prove that).
I'm only pointing out to undisputed bits information reported by the MSM (not conspiracy theories -except the gold shipments to China).
Your conclusionss from putting all this together are as good as mine.
Until next tiime,
Engineer
Note: The FOMC fully well knows they are plyaing with fire, they are trying to avoid the fall, but at this stage they don't know what else to do to avoid it. Oh and Washington's lack of fiscal discipline is not helping them...
Note2: If the smartest guy I know (IQ=240) were our president and wanted to destroy the USA and the current world economic system I don't think that he could be doing a better job than our dear O...a
Jesus Christ man, I would fuck me some Kyle Bass he is that fucking good--and I'm not gay.
hugh hendry is a better dresser
Perhaps you're not gay, but you do seem to have some conflicting sexual desires. Not that there's anything wrong with that.
Seriously man, I just want to tear into his balloon knot like there is no tomorrow.
just gonna have to roll yourself some nickles instead
is Bass Jewish-if he is he's probably storing them up his nose
Jesus, Bro - I am laughing so fuckin hard right now three people on my team have peaked into my office just to see what is going on.
Thanks for the Laugh!
since when is Mantie Tao posting on ZH ?
Japanese pension funds have $3.36 trillion in assets and only 0.03% of those in gold. That is insane with the yen falling so fast (The yen has fallen 17 percent against the dollar since Oct. 31). They should have had at least 2% to 5% in precious metals. If they do that, gold will easily exceed $2000 and silver $40 to $45.
These Bass warnings will become prime forensic evidence when the history of the collapse is written.
Who could have seen it coming?
+1 Bass is a Badass....
'I was gambling on Japan
I took a little risk
Send lawyers, guns and money
Dad, get me outta this!
Now I'm headed for Montana
a des-perate man
Sell JPY, bonds and muni
The shit has hit the fan'
Isn't he one of those new 1400 Billionaires ?
serious man crush on Mr Bass - the guy knows his stuff and to listen to him cover issues is like watching soft porn for a gold bug -
Kyle Bass aka Bond Vigilante packing a gun waiting for the ambush. To hell with social matters, make lots of money for yourself and your masters.
How many companies will he help destroy in the process?
He's a smart guy but something tells me that he won't win this round this time and those bets will be null and void.
Nobody gets to sweep the entire betting pool twice.
Hey if the counterparties are calling him and begging to release them from their contract, he has already won. The remaining question is whether is has a 40 or 400 bagger on this. Time will tell. Spring training hasn't even stated in Japan yet. Now to mix metaphors: But the demographic movement in Japan is like a boulder on a mountain that has started rolling. NFW will it stop. Mrs. Watanbe is gonna get crushed if she didn't see it coming from a long way off.
He is correct, selling insurance on a 1bp, if I understand the terminology right is like saying that the probability of an event is a lot lower than 0.01%
That goes agains all current theories and the guys running the numbers for these banks are either complicit into something ilegal (remember that they play with somebody else's money, not theirs) or management has been told to hire C level people on purpose to come up with this trash.
Whether you understand it or not, believe me when I say that he WON the minute he bought that insurance. NOTHING on this world is that low a probability level. As he well says, not even a nuclear holocoust in Texas.
Until next time,
Engineer
Well, Japan cannot default because they print money, just like the Fed does. If they want to keep rates at zero forever, they can do that.
If Kyle's insurance is on the yen, maybe he can win. But if it's on default risk, he will not win his bet.
Better to short yen and buy gold, as he suggested later. However, the yen has taken a serious beating... so very late to that game.
KB is like chlorine in the Hot Tub. Necessary to counter the progressive socialist largess. Since our Republic is non functioning rigth now, someone has to do it. The Fed has taken over the bond market so KB's action is logical. KB may let you see his one hand but you are not watching the other. You know KB knows how to follow the domino's as they fall.
Kyle Bass is foolish by saying "Buy gold". I would rather buy some ammo and then I can get anybody's gold for free!!!
I've got the pistols so I'll keep the pesos-yeah that seems fair
Have you ever been shot at? It is not fun and I doubt you have the stones for it.
Plus.... the laws of karma will still be intact and you will end up hung from a tree by your balls.
what in the fuck are you talking about junior-I was in the Nam fighting the Nazis at The Battle of Bunker Hill for Grant and Grandma
I thought that was called the battle of the Bulging Long Dong Phew
If anyone can find the Kyle Bass interview with Bob Pisani on CNBC's web site. (I don;t watch TV).
Kyle has on the mantle of his office a cammo sniper rifle. I cannot remember if it was an M24 bolt action or M110 which more AR with 7.62.
http://en.wikipedia.org/wiki/M110_rifle
The dude has a perserve in Texas with power, water, food, fences, bunkers, gold and guns.
That's where being friends with Austan Goolsbee comes in real handy for Mr. Bass.
Austan can tell his friend Barry Obama to make it clear that Big Sis at Homeland Security is to use those 1.6 billion rounds and thousands of armored vehicles messing with some other guy's retreat.
His copy of Machiavelli's The Prince is what will have really paid dividends for Mr. Bass should the SHTF.
Just stack and ward off attack, ya got that Jack?
Very foolish-most people with physical gold have plenty of guns and ammo to protect it. After they mop up and dispose of your cold , dead body, they'll just take your gun to add to their collection.
And anybody's guns.
Chances are pretty damn good that anyone who holds gold also holds guns!
Just did the math.
I have one gun for every seven ounces of AU.
The derivative bomb....so we wait.
With a Japan/China south china sea skirmish set for 2013. JPY trade will go through the roof. I'd bet against the EUR, as Europe's white knights go to war and the Fed fails to keep interest rates down. EUR cracks 1.30 and Europe finally blows apart.
I think they'll keep knocking the euro back and forth from 1.43 to 1.20 like a tennis match
With huge inflows going into USDs. That is telling. rates going up and USD buys. The Fed QE is looking like a complete failure. If the ECB can't hold the line, the EUR will be blastered to hell.
Asia going all war crazy
http://youtu.be/Ih-VJvCWBmQ
Don't let it bother you, Chump. Try to relax. I'm sure everyone will do the right thing in the end.
:D
I think Kyle is ultimately right. It's just just hard to guage when the blow out will happen. We are pretty close to a pullback. Some cracks are forming. There will be buying again on a decent pullback. After that I think things get out of hand and blow up. That's when you don't want to be on the wrong side of the market.
and in english tonight to boot
+5
Telling us to "sell, JPY, buy gold" is all well and good, but the thing I'd like to know is, how can we mere mortals participate in KB's trades? KB's fund, Hayman Capital Mgmt, has a USD 5M minimum.
Anyone interested in running an ETF to pool some money and buy a stake? Are there KB options...?
Debt doesn't matter, 16 trillion, 100 trillion, 200 trillion, etc. these amounts are only used to insure interest streams. Remember, it's created out of thin air but the interest payments come out of my and your pockets....
There is collateral for that debt. Selling off national tresures/assets is going to happen and that would be the country itself.
Well they've already sold us plebes out so I guess real estate and other plunders is what's left.
All efforts of the economic systems and financial markets in place today are designed to make a majority of the population borrowers, speculators or crooks.
Any attempt by a person to make an honest living either by saving or working are met by punishment in the form of zero interest rates or a buffet of taxes by the government.
Welcome to the new age democracy.
http://www.marketoracle.co.uk/Article35345.html
www.letstalkmoney2012.in
I love going over to ABC NEWS and other Zombie 'News' orgs. People over there are battling over who has more money between Paul Ryan and Obama. It's laughable. I sprayed a little truthiness and will revisit for the MSDNC Talking Points Memo. It will suck when this whole thing craters, but I may take just a little Schaudenfreude pleasure at watching these fools who thought the debt party could go on endlessly as they get vaporized and are revealed to the pain of this whole unfortunate situation.
at this point people either get it or they don't-like alot of shit-this all goes back to one's interpretation of 9-11(and maybe even further back to Ruby Ridge and Waco)
Or even 11.22.1963...
Or even 11.22.1963...
******
Or even further back.... 04/05....1922
http://en.wikipedia.org/wiki/Genoa_Conference_(1922)
werd, jj
First reply to it cited GWB for the defecit and they called me a Republican.....I love it. I could have wrote it for the guy. Bloviation at its finest! C'est Magnifique!
Democrats are really cool but Republicans like totally suck.
:/
Japan just set an all time record for welfare recipients for the eighth straight month. That's more people with government money in their pockets buying iPads, Hatsune Miku products, Maid Cafe lap dances, and lord knows what else.
Bullish!
maid cafes-if those don't give you insight into the Japnese prediliction for domination and submissiveness nothing will-that's why the rest of Asia hates these motherfuckers
"comfort women"
agriculture . water and energy and manufacturing to support that will rule america. the citys will be gulags
This bloke going on about having spent $50m for half a trillion dollars of jump risk on Japan which should be 400 times more expensive now. Is this FUCKING REAL? Are you kidding me? Are they - the buyers and sellers - all totally insane? Which fucking entity on the entire planet has enough funds to play the counterparty to this game? Is money flowing in from multiple parallel universes now?
Jump risk is a bit vague too, don't you think? I posted in another article that I thought Japan is being set up to die (BOJ may buy derivatives) but I never thought anyone might try to make a buck on the outcome of a holocaust. The world gets crazier and nastier by the minute.
Yeah, it's like Bass'll get paid eight trillion dollars when this is said and done.
He lost a lot of cred with me when he was on about that nonsense. And some bank calls him to please close the position. I'm sure they made an offer but being that he didn't bite, those 27 year olds look to be getting a fat bonus in about ten months.
:D
Come on Orly. Bass is a trader. He buys at 1. The seller calls back and offers to buy back at 3, because both Bass and the seller know it's going to 10,000. Bass waits. The seller calls back offering to buy back at 10. Bass hangs up again. Eventually he sells it back at 20, leaving (10,000-20) on the table. So be it. Take the bacon before it goes rancid. Pie-in-the-sky isn't on his menu.
He said it. He doesn't have time to look into the social implications of what he is doing or what it means for people...
Remember also that some of the best investors of our time returned the funds to their investors and disolved them in 2010-2011. They gave ficisious reasons but I wrote then that the only reason they did it is because they KNEW that nobody could protect their own money and come out unscathed from this, much less protect somebody else's money.
The problem the think tanks are facing is how to get out without a war and so far nobody has come up with any plans...
I want to wish Kyle Bass the best of luck ... hope his options be ITM, because this man is a good man.
Even if his trade fails, i will know that some of those TBTF and their lackeys will be trying to wipe out this guy.
What kind of options he has, FX options, or CDS to be short half a trillion?!
Sorry i just woke up ... if someone can help
He didn't really say exactly; didn't want to tell us everything except he likes Coke but isn't giving you the formula.
what is amazing is that the shadow banking size is so huge that these bets can bring down real economies; our capitalism is really standing on its head. Kyle Bass is just saying that in essence.
As TD so aptly pointed out in one of his papers, the shadow banking has been created in the 1980s and has grown out of proportion totally unregulated.
I know I am at a libertarian forum that worships financial wealth as an END in itself, but this exponential growth of financial electronic wealth by and for the banks and their HF surrogates on leveraged plays, is now eating up all the real wealth and has brought the real economy to a stand still.
What Kyle NEVER addresses is the root causes of this evolution which has made him rich but brought the first world on the brink of becoming much poorer. He is part of the system.
He can't 'cos its like asking the Pope : Why has your church become the opposite of the evangelical faith over the centuries? You can't expect people to be their own censors to curtail their own power. Thats human nature.
When an empire burns it destroys both the corrupt and the less corrupt but who benefitted from its imperial construct; like Cicero, murdered when the corrupted Republic fell, all the while he had fought to cure its inherent corruption from within. Vain ambition.
I guess, at his level, his fund would have custom-rolled OTC derivatives, mano a mano, like the last AIG. He's shocked, but gleeful, that the next AIG is here.
Yes, another grand bubble blown again by the kleptoligarchy.
Tear the mother fucker down; no other solution left. Sorry kids.
You all are such idiots. My god.
LOL
Thank you for the humerous interlude Dr.
How is Abe? How is the currency? The deficit? You must be advising them.
The Nikkei is higher than it has been since the worlddwide panic of '08. Since equity markets are leading indicators, we can infer Japan is on the right track.
Yes, currency depreciation will tend to do that, in nominal (as opposed to real) terms of course.
The Nikkei is up more than the Yen has depreciated.
Learn some math.
My mistake --- I forgot about the all-important bubble component.
(Although to be polite, I will refrain from mentioning the greatly negative Nikkei returns over the past 10, 15, 20, or 25 years).
You Keynesian cargo cultists can ALWAYS be relied upon for blowing financial asset bubbles, at least. So very kind of you.
Once again, it's math; it's science.
Yes, indeed --- it is grade-school-level math which you seem congenitally unable to perform, and a "science" (at least in its Keynesian incarnation) whose predictive ability hovers near absolute zero.
Now, please tell us again the fairy tale about how infinite government debt doesn't matter --- I really like that one.
Take a course in economics, and learn something.
I'll take that one. Allow us all to print our own currency out of thin air. Let's see who really has the "trust" for worthless paper fiat. If it wasn't for worthless paper backed by military power, you wouldn't even exist.
Economics:
If you have a cow, kill it, becuase that will mean you have to buy another cow, which is bullish for cows, which you raise. It will also reduce the supply of beef and milk if all farmers kill 90% of their cows.
Along with currency depreciation and inflation, farmers will then be able to buy one cow for the price of two, yet charge for four cows when they sell the calfs (a 25% profit!).
Of course, people will switch to soy milk or drink less cow milk or eat less beef, but this is why you start growing soybeans on 1/3 of your acerage, leave 1/3 fallow and recieve conservation easement $$$ from the Government for doing nothing with it, and plant some nice marijuanna on the other 1/3 of your acerage.
Raise some chickens and feed them the pot seeds; the eggs and meat will be a hit and no one will quite be sure why the shit you sell "tastes so damn good".
Milk, soy, and pot will be more expensive but the FED won't count it as inflation and you can give the THC laden buds to economists.
Now go smoke a bowl, and break some windows.
Win/Win!
science and economics are like water and wine; or a hooker and a nun.
Not saying that water/wine are not liquid nor hooker/nun not women; but they don't have the same nutritional or social functions.
Why mix uncertainty and certainty; Science only works when we are certain of EXACT repetition, impossible to attain in economics.
Oh, I am taking many courses in economics (enrolled in a graduate program) and wondering whether to do a thesis and blow your sad assumptions to hell. Only that I will have to publish it in a math or engineering journal.
Economics is based on so many assumptions, simplifications of models that have not been validated, economists use so many biased experiments to determine t)he truths that they use as facts for building models, they confuse so much simple associations with cause and effect relationships. I am truly flabergasted at the state of what I thought up to now was a science. I trusted you guys, while I did real science. But I started to get dissapointed when I saw what you were saying, why you were saying and decided to dwelve deeper into why you were saying it and collided agains doctrines, not solid proofs, the I dwelved even deeper trying to understand why, and all I find is more doctrine and inconclusive incomplete biased experiments (i.e. like the behavioral experiments done with economics students from where major supposed laws of economic behavior have been derived, I can't believe that nobody ever challenged the representativity of the sample with respect to the true universe of economic operators.
To end this discussion, it seems to me that you should go back to your economics books and study again the "Theory of Perspectives" of Kahneman. According to him, you don't have a clue about what is going on, you have only created a very simplified illusion in your mind that you understand and can explain the past. I second Kahneman, since my mathematical "engineering" like analysis indicates that we are in a chaotic system with clear and divergent attractors (some are WWiii) and that the dynamics of the system are such (as in any chaos type non-linear dynamic multiple feedback loop system) that it is not possible to predict the pathway between each of those attractors. The only thing that you can predict is that monetization will increase the instability of the system towards staying in its current attractor.
Eat your words, develop some modesty, read Kahneman again and go back to your basic assumptions and if you don't understand non-linear dynamic multiple feedback loop systems, go back and study them and follow what I am saying.
Until next time,
Engineer (am I the fool?, I hope so)
Contradict yourself much?
Soros: Reflexivity.
Nice.
Thats not saying much, but, nothing a Keynesian says ever is.
Yen is down about 27% if measured against $USD. Nikk is up 44%. Indexed against a US benchmark index (which has actually been appreciating against most other currencies), Nikk is up 16% in real terms, The problem is, all currencies have been depreciating in terms of real exchange value. So, Nikk up x% doesn't mean much unless I know what a point on the index will buy me in exchange.
How do you measure Yen deppreciation? Are you one of those nutjobs who assumes USD has a constant value?
I suggest you have a look at the Dow value measured in bananas:
http://www.zerohedge.com/news/2013-03-08/reality-check-dow-jones-industr...
So now what happened in '08 was due to a panic?!?! Not an inevitable unraveling of the house of cards?
The untruth lies in assuming that the unit of measurement of the Nikkei, the Yen, is a rigid reference unit. Economists love to do that. But for us simple minded PhD Engineers, give us a unit of measurement that is invariant, otherwise we know you are just trying to fool us using a flexible tape to measure a distance :)
Until next time
Engineer (the fool according to the ZH Dr. Paul Krugman)
Did you buy that mouthwash yet, Krudman?
I can smell your rank halitosis several thousand miles away and right through the internet! It's a good thing, though, that at least it does not stink even half as much as your crackpot, statist, pro-corrupt-status-quo Keynesian nostrums.
I am sick of your ad hom, pirate wench.
Why don't you ask me a real question - like how I have credibility and you don't.
You would first have to be a homo in order to be offended by any putative ad hominem attack.
"Ad hobbitem", now, perhaps ....
Your writing is incoherent.
Your crackpot Keynesian witchdoctory is more incoherenter.
Judge Likstane awards 3rd round TKO to AKAK. Krugman to the showers! ...and bring some wittier stuff next time!
"more incoherenter" is lovely to show linguistic keynesianism at its best!
Runaway superlatives like runaway money print.
Eloquent irrationality trumps coarse logic? Sounds like insantiy to me.
Tell you what doc, come back in two years and let's see whose money holds more purchasing power: your FRNs, or honest, 'traditional' money.
Now, if you'll excuse me, I'm going to follow Bass' advice and exchange for some more honest money - and go to sleep...
Krug - I don't know who the fuck you are but the stuff you add here is fucking brilliant! Credible enough to make it seem it's really your dumb ass, but at the same time cheeky enough to convince you are a troll.
Sublime!
If the world economy behaved symmetrically, there could be no world depression. A decline in the price of wheat might produce losses for farmers; it would, however, lead to gains in real purchasing power for consumers (shifts in real income from groups with different marginal rates of saving are ignored). Gold losses for one country would be deflationary, but gains for the recipient country would yield offsetting expansion. Contractive exchange appreciation would be matched by stimulating depreciation. The stock market could not absorb funds, since for every buyer that gives up money, there is a seller that gains it.
But symmetry is not the way of the world in all times and places, and not for the reason of interference by men with, say, the rules of the gold-standard game, or that New York as an international financial centre was inexperienced.
It happened that in Britain, from 1873 to 1913, foreign lending and domestic investment were maintained in continuous counterpoint. Domestic recession stimulated foreign lending; boom at home cut it down.
But the boom at home expanded imports which provided an export stimulus abroad in place of domestic investment with borrowed funds. Counter-cyclical lending stabilized the system.
In the 1920s, United States foreign lending was positively correlated with domestic investment, not counterpoised. The boom of the 1920s was accompani~d by foreign lending; the depression of the 1930s saw the capital flow reversed. In his The United States and the World Economy, written in 1943, Hal Lary recorded the fundamental fact that the United States cut down on imports and lending at the same time.
The cut in lending actually preceded the stock-market crash as investors were diverted from the boom in foreign bonds which followed the Dawes loan to the boom in domestic stocks dating from the spring of 1928. The deflationary pressure on Germany may be debated;1 the pressure on the less developed countries at the periphery is clear cut.2 As Table 1 (p.56) shows, moreover, Britain joined the United States in reducing its lending in 1929 over 1928.
https://www.mtholyoke.edu/acad/intrel/depress.htm
The time period(s) you cite are also times of War
The Crimean War, The wars of the East India Company, The crushing of the Boxer Rebellion, and of course, the prelude to WWII.
Very high correlation in my estimate to todays world
And, calling everyone idiots, Krugman, makes you any better?
I suppose being the biggest kid on the short bus has its advantages.
But its still the short bus.
http://www.stock-market-crash.net/1929-crash/
From 1921 to 1929, the Dow Jones rocketed from 60 to 400, creating many new millionaires. Very soon, stock trading became America’s favorite pastime as investors jockeyed to make a quick killing. Investors mortgaged their homes and foolishly invested their life savings into hot stocks such as Ford and RCA. To the average investor, stocks were practically a sure thing. Few people actually studied the finances and underlying businesses of the companies that they invested in. Thousands of fraudulent companies were formed to hoodwink unsavvy investors. Most investors never even thought a crash was possible – in their minds, the stock market “always went up.”
How the Stock Market Crash of 1929 Happened
In 1929, the Federal Reserve raised interest rates several times in an attempt to cool the overheated economy and stock market. By October, a powerful bear market had commenced. On Thursday, October 24th 1929, a spate of panic selling occurred as investors began to realize that the stock boom was actually an over-inflated speculative bubble.
Here is what is so fucking incredible - We are seeing history repeat itself. We are walking down the same road as was paved by the same FUCKING BANKS a century ago. And the people who are telling us we are not are making a million (and not in the stock market) by doing so.
Yeah, and idiots are only two notches above Keynesians.
Is there an echo in here?
Yeah, and idiots are only two notches above Keynesians.
Nice post. I say sell the family silverware. 18 months is 18 months. And I think he is way wrong about things not going ice9 when Japan goes. He has his assets going into the US but it is a craps shoot. If Japan goes the ability to collect may go with them.
Say if Japan nationalises Nomura and Mizuho banks, his counterparties and then declares all non-government deals null and void, for instance?
:D
If Japan goes, the whole world goes into a recession. Then the world looks around at other highly debted nations (US and UK) and the dumping of the dollar and pound begins. The US and UK join forces and bomb the shit out of The Gambia. Problem solved, Dow 50,000. ....bitchez! Sell your gold and BTFD!
"If Japan goes, the whole world goes into a recession."
"WAS IST LOSS".... last I check the world is in a recession......
Look, Kyle has been wrong about Japan for at least the last three years if not the last ten. Give me a break, he has some kid calling him selling jump risk? WTF, you mean a CDS, Kyle? It doesn't sound like he is addressing the right audience, and believe me, the kid is not going to millions in a bonus selling a CDS a at one basis point. But hey,it sounds cool... The swaps curve is just trading with the JGB market. It has been this way for a long time. There will also be massive intervention from the central banks that will support the bond market. There is no way he can put a time line on this. Remember, Kyle is still taking a drawdown from those one year CDS' that he is buying from the kid who is trying to get a massive bonus. (Sorry this still cracks me up)I would like to know how he has performed (Hayman Capital) in the last three years. In fact, I would bet he is still suffering from a drawdown. However, the trade buying gold/yen not a bad idea...
He did try to explain that he likes Coke but isn't giving away the formula.
:/
I don't see how it works out, either. I mean, the guy on the phone said that they must have miscalculated the spread and instead of 50bps, it was supposed to be 400? But the "kid" was selling it for one?
Now, I know very little about CDS but if he bought five yards at one and the real value was four hundred, that's like more money than a Japanese bank has liquid at any given time.
Hell, if it is five times four hundred, that's two thousand...billion, so two trillion notional? Am I losing my mind or just really bad at math?
:/
Addo: Someone up the thread said it was $50 M. I thought he said five billion?
Banks base their cds on everything being normal - but we're not in normal.
Furthermore Bass traded it for a one year term; he seems to think things in Japan won't last a year
Again it is the banks normalcy bias - then the bank clearly came to the same conclusion.
As always, the banks get complacent and think the new normal can last forever - until it doesn't.
The mistake is saying Bass has been wrong for 2 years, 3 years 4 years etc.
No one knows how long the Japan bond market can last, but every year it does go on, the risks of failure increase.
My guess is someone in the Fed, is getting nervous and sends out the order to start 'requesting' customers cancel their options.
Fuck you Ben...
Hi Orly how are U?
on 01.16.2013 I pvt wrote to You this:
...
What do You think about latest fx developements? It’s interesting how the eurchf is flaring up. Why? Repatriation bitchez? However until now both Tyler and Bruce Krasting were proven wrong in calling the end on the eurchf floor... quite the contrary! Maybe I have an explanation (only an idea).
Two months ago Tyler published this
http://www.zerohedge.com/news/2012-11-19/japan-losing-race-debase
Maybe forex traders should keep an eye on the rate of depreciation of currencies vs gold. In this case gold in chf and jpy is too cheap. If I’m right our efforts to fix gbpbot will be proven useful. It should came a time in which gold will appreciate against jpy and we could trade it being long usdjpy and goldusd.
...
I really wonder why I'm not as rich as Kyle Bass. :-(
Not so. He made a pile shorting the yen
I call bullshit on your "at least the last three years" statement... if you go back and look at his articles and speeches, his position timeline regarding Japan begins about 20 to 22 months ago.... and in those early statements he refers to "ways" in which things "might" unfold, he has since become "bolder" in his predictions regarding Japan.
http://kylebassblog.blogspot.ca/
edit: He has put his ass on the line, in one of the talks (with in the last 2 months) he makes the statement to the effect that the Japan situation will reach a head in the next 17 months.
the only thing kyle bass is wrong is when he said there's nothing retail investors can take advantage of japan's bust.
japan's bust is just one of links in the daisy chains or dominos.
stack silver, bitches!
FUBM!
japan's bust is just one of links in the daisy chains or dominos.
************
Absoulutly--the first major to die will be no different for the rest of the devaloped world than the demise of the PIIGS via rating agencies-
Stack wampum!
When he says that Japan can not be fixed, he must mean that they have passed the tipping point in his eyes. Many seem to have the idea that tipping points are just speed bumps, and countries work it all out over time. That is sort of true, but all that might be left is the geological country. Millions of lives, and thousands of businesses and organizations are destroyed in the process. The tragedy could have been avoided had things been done differently years ago.
What he means by cannot be fixed is that there is no chance of returning to the days of so called prosperity fuelled by a whole range of dovetailing phenomena such as free and easy credit, innovation, technology, lower trade barriers, consumerism etc. These phenomena are going in reverse.
He is also saying, very quietly, that war is coming.....
The other day Tyler put up a chart with China Exports and the % of total to the US. Big shifts there... it would be interesting to see the same chart but instead for China - Japan... Bass speaks to that in this lecture, refers to the "love" Japan will be feeling toward China......
He's funnier when playing guitar in Tenacious D
By the time all is said and done, it sounds like the Japanese will be wishing that Fukushima had gone off big time and put an end to their misery.
The truth is every nation, every family and every individual is facing unique challenges brought on by unsustainable trends that have gone on for too long and for which the bills are now arriving.
I am not sure that Kyle is going to collect on his bets this time, but then again he is probably a lot smarter than me .....richer anyway.
Why does he say, when asked, that retail investors cannot get in on this because they don't have exposure to "convexity"? Doesn't he mean duration, which is gamma for fixed income securities? And then when asked about increased volumes at the CME for Nikkei futures, he dismisses it as something like macroeconomic tourism, but he does say that the event he is looking for will basically happen in the blink of an eye (boiling the frog quickly, so to speak), in which case one might expect all Japanese assets to sell off for at least a few days, many of which are tradable by retail speculators, including the yen, which at the end of his presentation, he presents, along with buying gold, as his other part of his 10 year hiatus portfolio.
Kyle Bass is brilliant but he'll have to remind me why he thinks that he will be made good on his derivative bet that accounts for roughly 2% of the entire GDP of the USA. Last I checked, he has no affiliation with Goldman Sachs. Perhaps he's decided that his bet is so big that they'll have to bail out the other party in order to prevent a meltdown of derivatives. Good luck with that.
Remember it is an option.
If the option expires he lost that money anyway....but as he said one basis point? That’s insane.
If he doesn't get his payment it doesn't matter, things will be ugly anyway.
As for telling the bank that he would not be closing his position, I would too; as they were effectively asking him for a bailout so they can continue to screw their customers.
He's probably in the money already on it anyway, and can sell it anytime. Doesn't have to reach the endgame to get paid necessarily.
Slightly Off Topic ( actually NOT ) :
Beppe Grillo - 15 minute interview
Excellent interview - click on the Subtitle Icon, choose "Translate(Beta)" and choose "English"
.
http://www.youtube.com/watch?v=w7I9OwaPq7g
.
No wonder this guy is popular !
..."you have to wipe out the whole political class, and make a clean sweep - and rethink everything."....
He sees his job as ... "to wake people up ; make them curious and ask questions" .
BTW .. in other interviews and speeches, he fully understands the criminal Debt Money system .. and explains it quite well.