Kyle Bass Is "Perplexed" At Gold's Low Price

Tyler Durden's picture

"The stress is beginning to show," Kyle Bass warns during a wide-ranging interview with Bloomberg TV. "The beginning of the end," is here for Japanese government bonds as he notes that while quantitiavely it is clear they are insolvent, "the qualitative perception of participants is changing." But away from Japan specifically, there is a lot more on the Texan's mind. "Things go from perfectly stable to completely unstable," very quickly; even more so after 20 years of exponential debt build-up and Keynesian cover-ups; and it is this that he warns complacent investors that it is "really important to think about the capital at risk in your strategy." For this reason he prefers to hold gold rather than Treasuries, as, "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 than you should maintain a position." His discussion varies from housing's recovery to structured credit liquidity "money is being misallocated by the printing press" and the future of the GSEs, concluding with the rather ominous, "at some point in time, I would much rather would own gold than paper. I just don't know when that time is."

 

 

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."

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TeamDepends's picture

Price high in Japan.

Abraxas's picture

I've been "perplexed" for the last 2 1/2 years. 

Ag Tex's picture

How can anyone as tuned in as KB be "perplexed" about gold prices, when the entire world knows what's going on?  In addition, Tulving has been completely dry of silver Eagles.

SemperFord's picture

I am sure he does not want to seem like some Crazed/Conspiracy anti US lunatic.

lewy14's picture

Actually, Soros has a point.

If I look for reasons why gold isn't higher - and appeal to introspection - I have to say, I'm kinda... bored with it.

Investment has fashion seasons like everything else and gold is getting kinda played out and ratty looking.

Now, does this have any rational basis? Of course not. But it is a side effect of the way the human mind works, and the way the human mind works has a lot to do with the price action of financial instruments (of which class gold is certainly a member).

And is gold manipulated? Of course it is. Point being, the reason that the manipulation is working is that gold is falling out of fashion. When the trading desks of the PTB slice through the order book with their QE laser beams (in their oh-so-rational and subtle trading strategy), as they are wont to do a few times a week (or day), they succeed in resetting the price level better because that order book is simply thinner.

Gold needs some publicity which brings it back into focus. A magazine spread, a Piers Morgan interview. A sex tape.

I suggest gold get an agent.

The Alarmist's picture

Perplexed?  Maybe he should start buying in quantity and see if his demand can offset some of the market-rigging dumping and price fixing that is designed to keep the price supressed.

i_fly_me's picture

If taking delivery of 1600-odd Good Delivery bars isn't "buying in quantity," I am not sure what is.

Crisismode's picture

1600 Good Delivery Bars won't move the market one Iota.

Now, 16,000,000 Good Delivery Bars will have an effect.

 

That's the problem, there is not one single person/entity stepping up to the plate and placing

ONE HUMUNGOUS BET

That the market cannot meet, one bet so huge that all the manipulators in the world cannot

swallow it.

Only then, and ONLY THEN, will the market implode, when someone/ some entity takes on the market

Big TIME, Like the Hunt Brothers tried to do decades ago,

ONLY with MUCH deeper pockets

 

and calls their bluff, will the market implode.

Only then.

 

 

 

Manthong's picture

“I am perplexed as to why gold is as low as it is.”

I’m not.

http://www.youtube.com/watch?v=T0jpso4jDC4

the whole interview is great, but 16:30 should eliminate any confusion.

I miss that great program.

WmMcK's picture

Me, too -- especially the hostess.

HardAssets's picture

What Sinclair says in that interview makes sense . . . . if TPTB care about the dollar or about the people of the USA.

On the other hand, if they only care about the New World Order, a new global fiat currency,  and bringing down Americans to the level of serfs so they will be easily controlled - - - there may be no help from those quarters for the 'price' of gold.

I don't think the price quoted today reflects golds true value, and I think it will go up spectacularly from here. I think the manipulators will continue their games until it blows up in their faces however.

tsx500's picture

i'd like to check out Lauren's balloon knot ....  giggitty

dark pools of soros's picture

not too sure about that..  they could just take the order and say delivery 2-7years

ask Germany how they feel about it

DoChenRollingBearing's picture

@ Crisismode

See arithmetic below, all figures approximate:

1600 GDBs = 1600 * ((32 lbs / bar) / (2.2 lbs / kg) / (1000 kg / m.t.))

approx 23.3 tonnes of Au.

23.3 tonnes is about the quantity where it starts to get very hard to buy it all at once.

 

Real Estate Geek's picture

I think the Chinese program of acquiring Au qualifies as your humungous bet; they're just maximizing their upside in the process.

Anasteus's picture

Maybe this could be the sort of publicity which brings gold back into focus

Comex Gold Inventories Collapse By Largest Amount Ever On Record

FieldingMellish's picture

Gold has several agents. Kin Jong Un is one of them. 

Alexandre Stavisky's picture

Everytime one becomes discouraged about any position, remember what was just said.  Timing can be everything.  Sometimes you need to take 10%+ losses for several years to gain that eventual 300-500% return.  Remember too, all the great outcomes may have been longshots.  Winter Quarters in the confederated states revolutionary war, great despair and many patriots basically defected.  However Yorktown, French Navy, King George's Madness, and french counseled tactics allowed for the Cornwallis surrender.  The right flank of the Union Army under attack by the best generalship of Lee at Gettysburg.  Little decisions held under knotted stubborness can hold the day.

Gold allows individuals to presume to single sovereignity.  They remove their labours from the game table of the small gods.  Salted away, frozen away, removed away from the King's highway.  Plunder and piracy need the foolish to make mistakes and offer up their booty.  But gold and silver take it away, stack it away and hopefully preserve it for a better season of sowing, reaping.

Aim small, miss small.  Temporary setbacks for future routs.  Pretend weakness when you are overwhelmingly strong and strength when bereft.  Remember Ghandi and the cotton, the strikes of indian workers, small actions coordinated (under the smile and mandate of heaven) make great extinguishing waves which put out the furnaces of Kali.

 

"Please to let us pass through your country. We will not pass through fields or vineyards, nor will we drink water from wells; we will go along the King's Highway; we will not turn aside to the right hand or to the left until we have passed through your territory.'"
Then Edom said to him, "You shall not pass through my land, lest I come out against you with the sword."
So the children of Israel said to him, "We will go by the Highway, and if I or my livestock drink any of your water, then I will pay for it; let me only pass through on foot, nothing more."
Then he said,"You shall not pass through." So Edom came out against them with many men and with a strong hand.
Thus Edom refused to give Israel passage through his territory; so Israel turned away from him."
CheapBastard's picture

Alexandre is right. Remember when silver languished at $9-$14 for months? When everyone was "bored" and sold at $9, I actaully doubled down.

Glad I did.....a smooth return over 300%.

Patience is very important and a thorough examination of the fundamentals is important. Yes, fundamentals still count in the long run.

dark pools of soros's picture

and bitcoin went from $30 to $230 in a month..  700%

 

RideTheWalrus's picture

That's nothing compared to Twinkies going to a $1,000 in a couple days.

ReactionToClosedMinds's picture

yesterday I finally bailed on Wisdon Tree Commodity Currency (CCX) - mainly because of the increasing volatility around it was increasingly unsettling.  Sure enough today it got legs ........

conviction, thesis, trade, guess, weak knees ..... all inter-related.   That is why when you establish your cores, your thought process has to be as life-setting as one's religous or deep philosophical beliefs.  You have to know, understand then believe why you are not running with the crowd/herd.   And herds are known to make ridiculous swerves for almost unknown reason when in panic mode.   can one withstand a potential trampling ....  most realistically cannot so you have to bend with the mob, and position to bail before they make the final 'spooked' turn.

the above has been stated many times.    But 2008 was different (at least in my lifetime which stretches back in economic memory to the supply-side/classical Ivy League keynsians debate in the JFK admin ... where JFK shocked his 'officicials' and went Mundell  .... my guess is that Old JoeK, archdevil that he was, had enough econ savvy to know Mundell was right versus the academics and so said screw them).   I cannot forget that for the first time in my life, the potential was there for the 'wheels to come off the bus'.  Never before had that happened or felt like that ... not 1969, 1971-2, 1975-6, 1979-80, 1987, 1992, 2000 ..... 2008 was different.

 

ReactionToClosedMinds's picture

Civil War ... sorry to digress ... but might be of interest.

There is little discussion of Gettysburg of events somewhat off central to the battlefield....... J.E.B. Stuart for still unknown reasons was not a factor although he had been 'independently' shadowing Lee.   Lee, gentleman and period piece that he was, refused to ever comment on the mystery of Stuart.  But we do know one thing.   Stuart approached the Unions from their rear behind the knoll around day 1 or 2 (I cannot recall this clearly now).  An alert aide present, maybe sent to find where Stuart was, I cannot recall)  saw the feared Stuart's approach which by accounts seemed more meandering than purposeful.  He was with the Michigan cavalry.  The commander of the Michigans  and that aide realized what just might happen if the size of Stuart's force suddenly appeared at the rear of the infantry almost unannounced.  Showing the kind of initiative you wish every commander would demonstrate, that aide convinced (as he could not 'command' the more senior officer heading the Michigans) or they co-concurred that the only practical thing they could do was .....essentially a suicide attack on Stuart  ... with the objective to disrupt Stuart from coherently attacking the Union rear.   Stuart, evidently unaware of Lee's exact predispositions or needs, broke off the attack on the smaller Michigans and the meanderig direction he had been on.

That 'aide' was Geroge Armstrong Custer (now portrayed as an idiot & loser & loose cannon commander) ...yet Custer was good enough to be one of the top aides to be with Grant at Appomattox and astutely buy the signing table where Lee & Grant ended eveything.

Geruda's picture

The speaking you are having about the blonde general who committed suicide is having much interesting information about the attacking he was doing against the general who was Stuart.  I am wondering if the thinking you are having to be saying "disrupt" was in his mind is not thinking by peoples after the disrupt was happening and that the thinking in the mind of the general who was also wanting to be disrupting the bull who was sitting was blind luck to be having when only glory was the thing he was wanting to be having.  The words I am meaning to be saying is to be asking if strategy and tactics are things peoples are adding to the thinking of Custer who was not having them when he was doing the attacking he was doing.

Cognitive Dissonance's picture

"Gold needs some publicity which brings it back into focus. A magazine spread, a Piers Morgan interview. A sex tape. I suggest gold get an agent."

May I suggest Gold call Bitcoin's PR agent and have a sit down pronto?  :)

Supernova Born's picture

Gold is ably represented by CSA (chemistry, science, and astronomy).

The Alarmist's picture

Mr. Keiser is currently representing Silver and can therefore not take Gold on as a client.

RideTheWalrus's picture

$500 silver or $1,000,000 BitCoins - which one will reach Keisers claim first?

krispkritter's picture

Somebody invent the 'Goldashians' post-haste!!!! Kim, Khloe, hell, we'll take 'Glowie' Goldashian! Just don't cut the ratings!!!!

Spigot's picture

He personally holds $1,000,000 is US Nickels.

Supernova Born's picture

So 110 tons of nickels and 0.0 grams of bitcoins (regardless).

archon's picture

An agent would help, but in the long-term gold needs no agents other than the central banks, and no more pr than when the SHTF.  A pr agent couldn't drive people to gold any quicker than the thought of central bankers printing money, or when the SHTF as their monopoly money starts inflating prices.

NoDebt's picture

Agree.  Gold needs no agent.  Anything that's got a PR department is some percentage of bullshit.  Real value gets money by attraction, not promotion.

Personally, I think gold is weighed down by all the advertisements for gold.  Never a more sure sign that something is a "fad" than when you hear it hawked for sale on the TV, right?  EVEN WITH THAT TYPICAL SIGN OF "THE END OF A FAD" GOLD HAS NOT FALLEN TO SHIT.  We have NOT seen a 1981-like plunge.  We've really just taken the foam off the latte.  $1900 down to $1600 is not exactly "capitulation".  The coffee is still sitting in the cup, same as it ever was.

I'm not even a "gold bug".  To me, it's just another investment with it's own market, it's own strengths and weaknesses.  But in my opinion, if it was going to get sent to the woodshed and whipped like a red-headed step-child it would have happened by now.  It's NOT rolling over.  Just taking a minute to clear it's throat, perhaps.

Geruda's picture

"foam off the latte"

 

I am having laughings for the witty words you are speaking.

Againstthelie's picture

You should listen very carefully what Soros says.This people is known throughout 3000 years, all over the world, in all people and cultures as the masters of lie.

Soros did not say, what the stupid Goy interviewing Kyle Bass said. Soros said, people believe the safe haven status was destroyed. He did not say with one word, what he thinks about gold.

BTW, Soros never said, too, that Gold would be in a bubble. Only superficial GOYIM who always judge the overall straight meaning of sentences, because they are not trained to the technique of talmudic rabulism, heard that. Soros said that gold was the ultimate bubble. Means: when it becomes a bubble, it's the biggest of all.

ebworthen's picture

I'm sure people chasing the ethereal and nebulous promise of the intangible Bitcoin hasn't helped the Gold price.

Jungle Jim's picture

When I sell my silver (or gold), it is not because I am bored with it.

It is because I have nothing else left to sell in order to raise the cash to pay my rent, utility bills, grocery bills, car & homeowner's insurance, medical/dental bills, etc.

It's kind of frustrating to be forced to sell it at such a brutal loss, compared to what I paid for it. (That is, I have lost a LOT of money in PMs these past 2 1/2 years.)

Wow, it sure looks like I should have bought these BitCoins (whatever they are), instead of all that ungodly amount of silver and gold.

samcontrol's picture

Why are you paying insurance on a house that is not yours?

Escrava Isaura's picture

lewy, check FOFOA'S latest article [link below]... You will appreciate.

http://fofoa.blogspot.com/2013/03/checkmate-2-slow-history.html

 

lewy14's picture

Thanks! Very interesting. I'd been through the history of the London Gold Pool etc but it's great to read the contemporaneous accounts. 

BTW I think you're one of the few who actually "got" my post...

samcontrol's picture

well you mix fashion with castles in the air , so how can most understand you?

MedTechEntrepreneur's picture

Gold has an agent alright...The Fed...and they have lots money to play with.

Ghordius's picture

imho boring is the one characteristic of gold that makes it most appealing, to me - real money is supposed to be boring, compared to exciting investment vehicles