Kyle Bass Hunkers Down: "We Dramatically Reduce Portfolio Risk"

Tyler Durden's picture




 

Kyle Bass goes to Japan and finds all as expected...

After traveling through Japan for the past couple of weeks and with their economic experiment at the forefront of the financial press, it is an appropriate time to give an update on Hayman’s current thoughts regarding the island nation. My travels took me from Kyoto, the cultural heart of Japan to Tokyo, Japan’s financial epicenter. I met with all kinds of thoughtful and wonderful people throughout my trip – from tea service with Zen priests in Kyoto to the metaphorical Zen priests of finance in Tokyo. The Japanese people are some of the most inviting, respectful, and thoughtful people with whom I have ever had the opportunity to spend time. There is no doubt that culturally and historically, Japan is one of the richest countries in the world.

 

Unfortunately, I had this overriding feeling of sorrow and empathy for most of the people with whom I met because my conclusions regarding their potential financial fate were reinforced on this trip. Most large and complex problems do not have a single cause, and there are countless decisions and circumstances that have led Japan to its current situation. While there is no formulaic determination for the solvency of a sovereign balance sheet (despite many attempts to develop one), the inescapability of economic gravity remains constant. Japan and its leadership face an unsolvable equation in my opinion. The structural problems in Japan have existed for years and were evident during our original analysis of the situation in late 2009, but it is fascinating to observe the progression of the decline over time and the recent broad acknowledgement of their plight.

And also learns something new, if not unexpected...

Despite the abundant quantitative data indicating the fragility of the financial system and the risks posed by further indebtedness, very few individuals in Tokyo have expressed a willingness to embrace the difficult choices required to resolve this looming crisis. During my trip to Kyoto, I was introduced to a Japanese phrase that encapsulated the strangely fatalistic viewpoint that many local Japanese market participants have toward the twin threats of debt and deflation. This concept explains a resignation to the unfolding of events and a willingness to submit to this unfortunate reality rather than to fight a seemingly inevitable or impossible challenge. It seems apposite to reprint it here as we watch the beginning of this endgame in the Japanese debt markets unfold:

 

“Shikata ga nai”

 

It cannot be helped.

But perhaps most interesting are Bass' thoughts on China:

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. 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.

 

China’s direct contribution to global growth is enormous, but perhaps equally as important is its role in generating growth in developed and emerging economies. A slowdown, whether significant or extreme, in the Chinese economy heralds very bad news for asset prices around the world. A growth crisis centered in Asia will further exacerbate the instability and volatility in Japan and have a devastating impact on second derivative marketplaces such as Australia, Brazil and developing markets in South East Asia. The combination of rich valuations and further threats to growth has led us to dramatically reduce risk in the portfolio and actively position ourselves to withstand the uncertainty and instability ahead.

In short, Bass is once again hunkering down.

Full Hayman Capital investor letter below, courtesy of Valuewalk:

 

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Thu, 07/04/2013 - 13:20 | 3721561 Smuckers
Smuckers's picture

Aaaand I'll sit in this chair.

Thu, 07/04/2013 - 13:23 | 3721574 tsx500
tsx500's picture

KB rocks !   Keepin' it real.    Thanx KB

Thu, 07/04/2013 - 13:27 | 3721582 kaiserhoff
kaiserhoff's picture

I kind of like it.  We have to hang the traitors.

Shikata ga nai.

Thu, 07/04/2013 - 13:37 | 3721597 BaBaBouy
BaBaBouy's picture

If THEY Put The Brakes on CHINA ...

What Will 1 Billlion Broke & Angry Chinee Workers Do ??????
I Doubt That The Powers Will wait And See...
EASY::: PRINT and PRINT Big Fiats, Aound The Whirld !!!

Thu, 07/04/2013 - 13:50 | 3721655 HowardBeale
HowardBeale's picture

What will 1 billion...do?

 

Burn lots of foreign production plants to the ground...

Thu, 07/04/2013 - 13:59 | 3721670 Divided States ...
Divided States of America's picture

Locking up / kidnapping foreign born CEOs??? Hell, i think they will roast them alive for dinner!

Thu, 07/04/2013 - 15:37 | 3721877 Randall Cabot
Randall Cabot's picture

Hey ZH, wake up-Europe was up 3% today and S&P furures are up 15!!!

Thu, 07/04/2013 - 17:53 | 3722117 stocktivity
stocktivity's picture

It's all Bullshit!!!

Thu, 07/04/2013 - 20:00 | 3722385 Town Crier
Town Crier's picture

Please don't tell me he's buying Treasuries.

Thu, 07/04/2013 - 23:52 | 3722727 markmotive
markmotive's picture

Jim Chanos seconds Kyle's emotion:

http://www.planbeconomics.com/2013/05/chinas-actually-gotten-worse-jim-c...

In fact, he has stuck to his thesis for some time. Understandably the China implosion story could take a while to conclude but when it does Jim could be the next Nouriel...

And to top it off, liquidity is shrivelling and the system is super-levered...

Christine Hughes of OtterWood Capital Management: The System is as Levered as it Was in 2008

http://www.planbeconomics.com/2013/07/christine-hughes-of-otterwood-capi...

Thu, 07/04/2013 - 23:52 | 3722764 Chupacabra-322
Chupacabra-322's picture

I think everyone should follow World Bank whistleblower Karen Hudes, still recognized as their chief counsel by the finance ministers of 188 countries (kahudes.net). Here is a paper she frequently cites called “The Network of Global Control” which provides a formal mathematical demonstration that a small group of a few hundred people are a supra-national entity that controls the world economy and has captured the political processes of the transatlantic nations

S. Vitali, J.B. Glattfelder, and S. Battiston: The network of global corporate control

Table S1: Top 50 control-holders. Shareholders are ranked by network control (according to the threshold model, TM).

Rank Economic actor name
1 BARCLAYS PLC
2 CAPITAL GROUP COMPANIES INC, THE
3 FMR CORP
4 AXA
5 STATE STREET CORPORATION
6 JPMORGAN CHASE & CO.
7 LEGAL & GENERAL GROUP PLC
8 VANGUARD GROUP, INC., THE
9 UBS AG
10 MERRILL LYNCH & CO., INC.
11 WELLINGTON MANAGEMENT CO. L.L.P.
12 DEUTSCHE BANK AG
13 FRANKLIN RESOURCES, INC.
14 CREDIT SUISSE GROUP
15 WALTON ENTERPRISES LLC
16 BANK OF NEW YORK MELLON CORP.
17 NATIXIS
18 GOLDMAN SACHS GROUP, INC., THE
19 T. ROWE PRICE GROUP, INC.
20 LEGG MASON, INC.
21 MORGAN STANLEY
22 MITSUBISHI UFJ FINANCIAL GROUP, INC.
23 NORTHERN TRUST CORPORATION
24 SOCIÉTÉ GÉNÉRALE
25 BANK OF AMERICA CORPORATION
26 LLOYDS TSB GROUP PLC
27 INVESCO PLC
28 ALLIANZ SE
29 TIAA
30 OLD MUTUAL PUBLIC LIMITED COMPANY
31 AVIVA PLC
32 SCHRODERS PLC
33 DODGE & COX
34 LEHMAN BROTHERS HOLDINGS, INC.
35 SUN LIFE FINANCIAL, INC.
36 STANDARD LIFE PLC
37 CNCE
38 NOMURA HOLDINGS, INC.
39 THE DEPOSITORY TRUST COMPANY
40 MASSACHUSETTS MUTUAL LIFE INSUR.
41 ING GROEP N.V.
42 BRANDES INVESTMENT PARTNERS, L.P.
43 UNICREDITO ITALIANO SPA
44 DEPOSIT INSURANCE CORPORATION OF JP
45 VERENIGING AEGON
46 BNP PARIBAS
47 AFFILIATED MANAGERS GROUP, INC.
48 RESONA HOLDINGS, INC.
49 CAPITAL GROUP INTERNATIONAL, INC.
50 CHINA PETROCHEMICAL GROUP CO.

http://arxiv.org/PS_cache/arxiv/pdf/1107/1107.5728v2.pdf

Fri, 07/05/2013 - 00:37 | 3722808 bilbert
bilbert's picture

What the fuck??

Goldman Sachs a paltry #18 on the list??

If Goldman is doing God's work - who's doing Barclays work??

Fri, 07/05/2013 - 03:34 | 3722879 All Risk No Reward
All Risk No Reward's picture

Think it through...  toss out assumptions...  toss out inferences...

You can get it... 

Goldman and Barclays are OWNED AND CONTROLLED by the same Big Finance Cartel.

They are, in essence, front corporation subdivisions of the very same international banking cartel.

If you collected rent on the world's money supply, would you use your proceeds to buy control of Coke and compete with Pepsi, buy control of Pepsi and compete with Coke or actuary out the minimum amount of money it would take to buy control of both and run them as subdivisions, all the while selling the gullible public on choice and competition?

Whenever I ask that question, I always get the same answer.  Every time.

Does that little key to the puzzle improve your optics?

Thu, 07/04/2013 - 18:03 | 3722133 thestarl
thestarl's picture

So does'nt change the big picture situation.

Thu, 07/04/2013 - 16:49 | 3721999 Chupacabra-322
Chupacabra-322's picture

"Burn lots of foreign production plants to the ground..."

Great! Perhaps that will bring the jobs & production plants back home.

Fri, 07/05/2013 - 01:24 | 3722837 Spastica Rex
Spastica Rex's picture

What - Mexicans building Android phones in Duluth?

Thu, 07/04/2013 - 14:37 | 3721709 CPL
CPL's picture

They did it in the 90's.

https://en.wikipedia.org/wiki/History_of_the_People's_Republic_of_China

I heard numbers like 65 million - 140 million people laid off when it was happening.  Not sure of the real number, probably closer to 300 million considering the place was fully blown state run (like it isn't now, lol).  unlike last time the Chinese people didn't borrow any money and made due.  This time though there are lots of bank loans floating around out there.  Not just internally, I believe the IMF has billions on their sheets as well.

Thu, 07/04/2013 - 13:30 | 3721590 DaddyO
DaddyO's picture

While KB has a reputation for "telling it like it is", remember he is always selling his book!

I will say he is one of the few often quoted fund managers who puts his money where his mouth is...

DaddyO

Thu, 07/04/2013 - 13:41 | 3721623 prains
prains's picture

except the entry to his book is prohibitive to guys like you and me so he's not really selling

OT

here's a great graphic on our real lack of choice and pretty much sums up the overarching corporate control_tyranny we live under

https://plus.google.com/u/0/+AlirezaYavari/posts/fmauRTvHb27?cfem=1

Thu, 07/04/2013 - 13:48 | 3721648 tsx500
tsx500's picture

great link, thanx !

Thu, 07/04/2013 - 17:08 | 3722017 Big Slick
Big Slick's picture

I like this choice better ...

Ag or Au?

 

Thu, 07/04/2013 - 18:40 | 3722186 Herd Redirectio...
Herd Redirection Committee's picture

"Talking your book"

Sprott too, ZH too, Reggie too, me too...

Thu, 07/04/2013 - 14:00 | 3721677 Not My Real Name
Not My Real Name's picture

Let's get one thing clear: "tyranny" is the sole domain of government. Not corporations.

And it will remain that way until the day finally comes when companies like Nestle, Exxon or any other conglomerate have thepower to take away my freedom at the point of a gun.

Thu, 07/04/2013 - 14:33 | 3721735 prains
prains's picture

it's nice you still distinguish the two as separate entities, for me 1980 was the start of USUK going full retard corpro and out in the open with a public doctrine, although this was going on behind the scenes for a century Raygun rolled it out like he was one of the Kool Kids

Tyranny is the drink and you will drink it regardless of whose hat you want to put it on, personally I'm out on anymore 'ism' parties

 

Don't think for a second all those wonderful boys and girls dead in some ditch in Iraq (on both sides) didn't lose their freedom at gunpoint that wasn't entirely sponsored by a corporate entity, so I don't really get your point

Thu, 07/04/2013 - 14:45 | 3721781 blabam
blabam's picture

Without the The State it wouldn't have been possible. Try fighting a war without taxing power/ deficits/ Benny bucks.

Thu, 07/04/2013 - 14:57 | 3721804 prains
prains's picture

Yes but behind the state machine is the corporate oligarch initiating the policy to start, execute and profit from illegal wars. The state is just in charge of making illegal action "legal". How is it you don't think entities like Carlyle Group aren't initaiting the idea of Iraq. The elephants and donkeys are just the frontmen to their policy choices.

Thu, 07/04/2013 - 15:27 | 3721852 blabam
blabam's picture

Without The State the Carlyle Group wouldn't even exist.

Thu, 07/04/2013 - 16:07 | 3721921 prains
prains's picture

you're talking ancient history, I'm sure Haliburton started out as one guy down at the incororation office too. Now however, Carlyle Group is a beacon of regulatory capture and crony capitalism,TODAY, this minute, right now. How else to capture a state, you own those who work in it. Don't let the door hit you in the ass as you revolve out of state policy making into corporate policy and back again. This is all simple well documented stuff, none of which I discovered on my own, you've got some catching up to do.

Thu, 07/04/2013 - 23:27 | 3722723 Totentänzerlied
Totentänzerlied's picture

You have causation backwards.

Thu, 07/04/2013 - 16:03 | 3721926 walküre
walküre's picture

You don't seem to get it. The "State" IS corporations like Carlyle Group. Your vote does not count. Execs at Carlyle Group or Exxon, PG have a say. But mostly the majority shareholders in the big corps are the ones calling the shots. Who are they? TBTF and their investors of course. Who are the investors at TBTF? A handful of indidviduals or families. Don't fucking kid yourself about who is calling the shots and who will always benefit no matter what direction the wind blows from.

Money begets more money and power begets more power. Absolute power corrupts absolutely. Behind all the corporate networks are people, real people. These are the oligarchs who some might call the shadow government. Politicians are ignorant puppets, wilfull helpers of the oligarchs.

Thu, 07/04/2013 - 16:09 | 3721936 prains
prains's picture

+^^

Crony 101 thanks W

Thu, 07/04/2013 - 16:29 | 3721964 blabam
blabam's picture

The State is a creation by and for the elites. People have been oppressed for thousands of years by this institution without the help from corporations. The monopoly on violence IS the problem not corporations. 

Thu, 07/04/2013 - 16:40 | 3721983 prains
prains's picture

I can't help you man the blue pill is all yours, good luck

Thu, 07/04/2013 - 16:58 | 3722014 blabam
blabam's picture

Great rebuttal.

Thu, 07/04/2013 - 17:17 | 3722029 prains
prains's picture

dude we're arguing the same point just with different names, I say corporate you say state, it's the same thing. They are both the same so why take up space on the thread? Time to move on

 

edit: a good book for you to read is Ferguson's "A Predator Nation" read it then ask yourself how is it this is in print and in the most litigious nation in the world, a bunch of lawyers haven't gone batshit trying to suppress it. <<they can't>> Also read Stockman's "The Great Deformation", that'll be enough red pill for ya

Thu, 07/04/2013 - 23:20 | 3722715 Ranger4564
Ranger4564's picture

I think it's critical that we distinguish between the 2 governments, one imposed by overlords, and one elected by the citizenry to protect them... by government, I'm referring to everything from the current system, to the election of the sheriff who protected the local community from the criminals. We chose certain roles / people to serve the people, but these people are often coopted by the overlords given their threat of force and financial bribery / blackmail.  It's not just a government against a corporation narrative. It's the government imposed by the overlords, the government coopted by the overlords and corporations, the corporations imposing their will on the globe, etc. Long story.

 

I disagree that the corporations need government to be oppressive and destructive... a part of the government was actually created to control the out of control corporations such as Standard Oil... unsuccessfully, sure, but many corporations were destroying the citizen before some form of government intervention occurred to protect the people, but now, the corporations have the government captive, so the regulations are actually working against the people.

 

So the argument seems to be, because there is a likelihood that a corporation will coopt a government, let's not have a government at all. Has it not occurred to anyone that it is the Oligarchs and the Corporations - the structural elements that are far in excess larger than the power of the citizen - that are the problem and that getting rid of these is the primary concern? We don't need to eliminate corporations per se, we just need to reorganize them so they have no capability to accumulate any political or real economic clout. The people will hold that power.

 

We are at the verge of a structural change, but so many people are focused on resolving past problems, not addressing the future. Reorganize the system, so it cannot be captured.  I've written far more about this in the past here... this is a recent post.

 

http://www.zerohedge.com/node/475884#comment-3712381

 

Thu, 07/04/2013 - 22:58 | 3722686 BigJim
BigJim's picture

You're seeing 'The State', we're seeing a bunch of predators, swapping hats with signs saying 'government', and 'corporate', so quickly the sheep can't read the writing.

The State is the fist of the Elite, who own the corporations, that lobby the politicians, who run the State, that regulates the corporations. and sign-off the legislation... written by lobbyists working for the Elites... who...

You get the picture?

Fri, 07/05/2013 - 08:01 | 3723005 Pegasus Muse
Pegasus Muse's picture

Some in the LameStreamMedia claim he hasn't 'sold out by taking a Wall St job'. 

BS.  How much $$ is he making?  Who's paying him?   -- both above and below the table. 

Oh, and TaxCheat Timmy's mentor, Robert Rubin, is co-chairman of the Council on Foreign Relations.  Imagine that ...

http://en.wikipedia.org/wiki/Robert_Rubin 

====

Tim Geithner Now a "Distinguished Fellow" at CFR

http://www.slate.com/blogs/moneybox/2013/02/06/council_on_foreign_relations_snags_geithner_treasury_secretary_to_cfr.html

 

Thu, 07/04/2013 - 14:57 | 3721801 Not My Real Name
Not My Real Name's picture

Sorry, Haka, but this isn't a chicken and egg thing. We're suffering from fascism now, but it can't exist without a corrupt government to set the wheels in motion and pass the laws that enable it.

If you think the fascist policies wer're suffering with now started under Reagan, you might want to tell that to Dwight Eisenhower, who was warning against the military industrial complex two decades earlier.

You can argue red and blue are one in the same, but to say private corporations and government are equivalent is painting with too broad a brush.

From some of your previous comments, it seems to me that you lean toward the collectivist/government side of things, so I can see why you "really don't get my point." it also explains why you would want to try and lump private corporations in with government -- but it's wrong.

As for those dead boys and girls in some dead ditch, corporations don't order anyone to war. Your hyperbole notwithstanding.

Thu, 07/04/2013 - 15:04 | 3721818 prains
prains's picture

Well lets agree to disagree, but behind every donkey and elephant is a Carlyle, Booz, Allen et al. corporate revolving door crony, directing policy and my arguement still stands that their influence was essential to starting the Iraq war. Without it I doubt it would have happened.

As to my "collectivist" leanings yes, I will always help my friend and neighbor, sorry I love them and would do all I could to help. I'm not sure that type of "collectivism" is a bad thing

Thu, 07/04/2013 - 20:50 | 3722498 forward ho
forward ho's picture

That type of collectivism is great.

Its a problem when others decide how much help needs to be given.

Fri, 07/05/2013 - 00:11 | 3722778 prains
prains's picture

the word collectivist / ism is a meaningless word it has no universal understanding so I'd rather ditch it and start another; I'm a mudivist and a believer in mudivism; I like mud

plus being a mudivist has the added bonus of confounding the NSA.....WTF is a mudivist? We like mud and eat cheesepoops

Fri, 07/05/2013 - 09:58 | 3723401 ronaldawg
ronaldawg's picture

PAINS is a true commie - changing the meanings of words to suit his collectivist worldview.

OBAMA did the same thing to get elected twice (stimulus, investment, green energy, etc.)

Fri, 07/05/2013 - 00:07 | 3722784 tip e. canoe
tip e. canoe's picture

I'm not sure that type of "collectivism" is a bad thing

not at all, just as long as it's not enforced upon someone else.

Thu, 07/04/2013 - 16:00 | 3721924 WillyGroper
WillyGroper's picture

>>>>>corporations don't order anyone to war. Your hyperbole notwithstanding.

That's right! CONgress does...Oh wait 

Thu, 07/04/2013 - 16:07 | 3721933 walküre
walküre's picture

Why don't you discuss Paula Dean or homosexual marriage? After all that is what you're supposed to care about and get distracted with. Don't look behind the curtain - ever.

Thu, 07/04/2013 - 15:56 | 3721916 WillyGroper
WillyGroper's picture

Ahh, the RayGun-Thatcher years. That was the beginning of my awakening.

 Govt & Corp = Symbiotic Incest

Thu, 07/04/2013 - 16:05 | 3721928 prains
prains's picture

and one of their first steps was to capture the universities intellectual base through funding removal and thereby eliminating a major source of intellectual criticism. Basically intellectuals were told play along or no funding for you, keep your mouths shut. Most sold out and hence no reliable source of scholarly debate is left in the Various States of Detroitification. It's up to CNN now, holy fuck!

Thu, 07/04/2013 - 16:14 | 3721947 WillyGroper
WillyGroper's picture

Should you like to see how that very process also caputured pharma & healthcare treatment protocol, look no further than a docu "Under Our Skin". 

Much like the Hank the Tank in what they've done to physicians. Heaven help the pukes if they ever get on the wrong side of theirs. 

Leprosy & scabies to the errogenous zones would be to kind for them. 

Thu, 07/04/2013 - 16:36 | 3721970 prains
prains's picture

it's all boxed and ready for shipping, even the SHTF is prepackaged and waiting for release. The first to go violent will be TPTB, it's their trump card for total control. But it only works through fear and violence. The only way to win is stand still, don't blink and don't move. Total silence.

 

my theory is VSD<2013usa> has two canaries in the coal mine;

1. Japan > print to the collapse > probably goes down first

2. Germany > austerity to the collapse > PIGS may take them down first.

Two opposing fiscal theories are playing out real time for the US to monitor effects both financially but also socially. Interesting how both these countries as cultures are the most submissive as well. So when one or both of these cultures goes over the cliff, the US will have advance notice of how severe the backlash from their own populations will be and the US can prepare accordingly knowing that if it goes batshit in relatively benign cultures then it's going gong show back home and we all know Tanks beats guns all day long.

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