Kyle Bass Suffers "Worst Year In The Last Ten", Reveals His Best Investment For The Next "3-5 Years"

Tyler Durden's picture




 

One year ago, when oil was trading in the mid-$50s, and when MarketWatch released an article saying "Now’s time to consider energy stocks: Goldman Sachs, Morgan Stanley" (from December 15), we took the other side and on January 29 we explained why "Either Oil Soars Back To $88, Or Energy Stocks Have To Tumble By Over 40%."

Oil stocks did indeed slide, if not as much as we expected, although out other forecast was virtually spot on: we said that the implied price of oil one year out would tumble by over $14 to just $36/barrel. This is precisely where oil closed the year: at the lows (and at $36/barrel), despite the daily protests of hundreds of so-called experts who took every opportunity to tell the world they are using other people's money to BTFD, and daily called for "imminent bounce" in oil prices. Simply said, dogmatism at its worst.

One person who admits their "dogmatic views" cost them dearly, was Hayman Capital's Kyle Bass, who in an interview to be aired tomorrow on Wall Street Week, says that "this has been one of the worst years in the last ten."

And yet, even though his expectations for a rebound in energy prices in 2015 did not materialize, Bass is doubling down and told Gary Kaminsky that there is a "massive opportunity in energy." He explains his optimism as follows:

The margin of safety for the globe is the smallest it's ever been in energy: global demand is 96 million barrels per day, the highest it's ever been, and incremental supply capacity, or swing capacity, is at the lowest point of that, about a million and a half barrels a day.

He notes that very little marginal production has come offline, with US production declining by just 400k barrels per day from 9.6 million bpd to 9.2 million bpd. Of course, the wildcard in Bass' forecast is that demand will remain in an uptrend based on his assumption that "global GDP will still be positive."

Alas, that is only the case when denominating GDP in local currencies, something which for a USD-denominated asset (which is where the collapsing price problem stems from in the first place) like oil, and energy in general, is meaningless. As we have shown before, in USD terms the global economy shrank by just about $3 trillion in 2015, and as Deutsche Bank added, this was the worst dollar-denominated GDP recession in 50 years!

 

Macroeconomics aside, Bass' thesis about the virtually non-existent margin of error at the, well, margin is the following:

"The U.S. added a million barrels a day five years in a row, but it took $100 crude for us to do that.  We were the marginal swing producer for the world.  And now we're going to go down a million barrels a day, I think, in the next 12 months.  So, we're going to go from a glut to all of a sudden a deficit.  And the world's not ready for a deficit."

Once again correct, but once again incomplete: recall "I Know Of No One Who Predicted This": Russian Oil Production Hits Record As Saudi Gambit Fails", in which we showed how as US shale became less important as the world's marginal source of oil, it was none other than Russia who is aggressively stepping in to fill the US shale void.

This morning Reuters reminds us of just that: "Oil output in Russia, one of the world's largest producers, hit a post-Soviet high last month and in 2015 as small- and medium-sized energy companies cranked up the pumps despite falling crude prices, Energy Ministry data showed on Saturday. The rise shows producers are taking advantage of lower costs due to rouble devaluation and signals Moscow's resolve not to give in to producer group OPEC's request to curb oil output to support prices."

In other words, anyone hoping that there is a small margin of error when it comes to incremental supply will likely be very unpleasantly surprised in 2015.

Which brings us to Kyle Bass' best investment idea for the medium-term: "If you are going to allocate capital for the next three to five years, you should do it now" into the energy space over the next 6 months.

Bass is agnostic as to what subsector of energy one should invest in: whether it is infrastructure, pipelines, producers, upstream, downstream, he believes that there are places in the cap structure of each of these where once can put new capital and generate substantial returns.

Bass' summary is that the energy rebound, when it happens, will be comparable to the housing rebound post 2009... which, we would like to remind readers, has not nearly as "strong" as many wish to make it appear, and was driven by three core pillars: a shortage of inventory (due to the foreclosure scandal of 2010 which plugged the REO pipeline for years), foreign capital and Wall Street investment in distressed properties. For everyone else it has been largely a wash.

As to whether Bass will be correct this year, or whether he will suffer another "worst in ten years" performance over the next 12 months, tune in in one year to find out.

Excerpted interview below:

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Sat, 01/02/2016 - 18:54 | 6989288 mkkby
mkkby's picture

Prediction - dollar crash and burn -- not this decade or next.  Your 18 month warning is when italy, spain, france and japan "go greece". 

Everybody else with big fiscal deficits have to crash first, and their crashes will support the dollar.

Sat, 01/02/2016 - 13:33 | 6988363 doggis
doggis's picture

2016

WHAT'S HOT - ZERO HEDGE!

WHAT'S NOT - KYLE BASS!

Sat, 01/02/2016 - 13:34 | 6988367 Son of Captain Nemo
Son of Captain Nemo's picture

And with that sage financial advice you can buy itn one of Kyle's investment portfolio(s) in the new year complete with a DVD of his party events to glorify and endorse for money that other "Kyle" that bankrupted US before he got his ass shot dead!

Sat, 01/02/2016 - 13:43 | 6988390 g3h
g3h's picture

Betting against the Fed is a bad idea.

Sat, 01/02/2016 - 13:45 | 6988393 The Ram
The Ram's picture

Pretty hard to see how the price of oil will increase except a huge war in the ME that takes out significant production facilities. The west is in recession and the emerging markets are crashing. How do you get increased consumption in this scenario? Also, oil storage has been maxing out, so that is another factor. They may be able to manipulate the price of oil so it does not crash into the 20's or teens, but I just don't see the days of $100 barrel oil returning anytime soon. Here's a prediction. This is the year that the surviving members of the middle class tighten their belts and retail begins to crash hard. Let's see what happens in 2016. It will not be boring!

Sat, 01/02/2016 - 13:59 | 6988435 DipshitMiddleCl...
DipshitMiddleClassWhiteKid's picture

2016 will  be a good year for traders thanks to volatility from all these zombie industries starting to fall over

 

 

Sat, 01/02/2016 - 13:45 | 6988395 FlacoGee
FlacoGee's picture

One trick pony.    You would have made more money putting your cash into a bank CD than with him for the past 8 years or so.

Oil will rise with any one of the following:  1) USD weakness  2) War involving Saudi Arabia homeland (Let's hope Donald Trump is president at this point... otherwise we jump in on Saudi Arabia's side :(  )   3) OPEC cut   4) Bakken/Eagle Ford production declines

Any two of the above and oil moves rapidly.

 

 

 

Sat, 01/02/2016 - 13:58 | 6988423 Pool Shark
Pool Shark's picture

 

 

"You would have made more money putting your cash into a bank CD than with him for the past 8 years or so."

 

Indeed.

I like Kyle, but he seems to be having trouble spotting trends in recent years.

As for the CD thing; I'm getting between 3% and 3.5% on FDIC insured CD's. Beat the hell out of the DOW, S&P & Russell in 2015. I suspect I will also continue to beat the markets in the next year or two when the real market crash occurs.

Hussman is predicting 0% returns over the next 10-12 years with a 40-50% crash along the way:

http://www.hussmanfunds.com/wmc/wmc151228.htm

Funny that everyone agrees that 2000 and 2008 were Bubbles. What does that make 2015, a "Hyper-Bubble"?

https://g.foolcdn.com/editorial/images/140956/sp-500-since-1950_large.PNG

 

[Cash, Bonds, Gold...]

Sat, 01/02/2016 - 13:55 | 6988407 buzzsaw99
buzzsaw99's picture

the oil market is like a loaded vlcc on the open sea, that is to say, it doesn't turn on a dime. in other words, if he is early on his call then he is dead wrong.

big oil stock prices haven't gone down that much, and imo they won't because the dividend will be the last to go. capex will go first but production already in place will stay.

Sat, 01/02/2016 - 13:55 | 6988424 FlacoGee
FlacoGee's picture

define "on a dime"

The decline from July 2014 to December 2014 (50% drop) was pretty "dimey".

The 2009 ~100% increase in 3 months was pretty "dimey"

 

 

Sat, 01/02/2016 - 14:03 | 6988430 buzzsaw99
buzzsaw99's picture

that was speculation artificially sending a false price signal, not a supply/demand mismatch-induced price collapse. you want to bet that a 1.5M b/d glut will turn on a dime?

edit: okay, some huge event could fundamentally change the picture. war, political upheaval, embargo. but to say that the market can change is a lot different than betting it WILL CHANGE.

Sat, 01/02/2016 - 14:07 | 6988452 FlacoGee
FlacoGee's picture

So, using your logic, the massive short position (highest ever) in oil has no effect on the price?   Oil is correctly valued at this point and it is because of the "glut".

What happens if the short position is abruptly covered?

"dimey"

 

 

Sat, 01/02/2016 - 14:14 | 6988468 buzzsaw99
buzzsaw99's picture

i'm saying at this point the price is almost irrelevant. speculators signaled demand over the past five years, the real oil market responded by boosting production, causing a glut. if demand doesn't increase the glut will probably persist for some time no matter what the price is. eventually lack of investment will cause a drop in production but that may take some time. furthermore due to the fed's zirp meddling big oil stock prices will likely stay high due to their dividend.

Sat, 01/02/2016 - 14:14 | 6988471 FlacoGee
FlacoGee's picture

Oil markets are violent sometimes.   That was main point.

The risk/reward of oil at this point is $10/$15 to downside (short) and $50/$60 to upside (long).

And it can change on a dime and it can be violent.

Sat, 01/02/2016 - 14:16 | 6988479 buzzsaw99
buzzsaw99's picture

the only thing violent about it is over-levered speculators with their tit caught in a wringer. actual stores haven't really varied much. this is all the fed's fault and that has nothing to do with the real market other than fucking it up.

Sat, 01/02/2016 - 13:53 | 6988416 The Duke of New...
The Duke of New York A No.1's picture

When your investing against a rigged casino; your chances aren't very good.

Sat, 01/02/2016 - 13:55 | 6988422 roadhazard
roadhazard's picture

Give every raghead a dune buggy and they will have more respect for oil.

Sat, 01/02/2016 - 13:59 | 6988434 jm
jm's picture

Hayman capital has been a dog for years, so his "worst" has to be a used-up diaper.

S&P 500 energy common stock is underperfoming on a total return basis to the S&P 500 energy bonds over a five year time frame.  Find an energy company with a strong balance sheet with some merger optionality. Ride the equity for a few years, forget cap structure plays.

 

 

 

 

Sat, 01/02/2016 - 14:03 | 6988436 Sudden Debt
Sudden Debt's picture

Never jump into a trend.

Look at it, and save it. Look at it again in 3 to 6 months from now and if it didn't respond yet but should have by that time, it might be time to step in.

Sure oil will go to 200 dollars one day because of a lack of investment! 100% SURE!!

but not yet. And the worse it gets, the better it will get.

I'm waiting a few months more, and if in that timeframe, oil hits 30, then I step in.

And only if the oil companies go down with it because they're still to high right now.

 

Also, we still need to see a industry consolidation. Untill then, we'll first the the bankruptcies. And you don't want to be in those stocks right now.

Sat, 01/02/2016 - 15:59 | 6988709 TradingTroll
TradingTroll's picture

No way oil is going to $200. I could see maybe $150-175 coinciding  with a collapse  in the US dollar index. It's all looking like that trade will tee up later this year and trigger next year. Mr Bass may lose money in US dollar index terms. Better to buy oil in Canadian  dollars to put on this trade Mr. Bass. But that's the extent of my suggestions. I may not be as high profile  as Mr Bass but my trades have performed better than Hayman.

 

 

 

Sat, 01/02/2016 - 14:08 | 6988453 Consuelo
Consuelo's picture

Kyle's thinking about war, but not forthcoming about it.   Not good for business.

 

 

Sat, 01/02/2016 - 14:11 | 6988466 83_vf_1100_c
83_vf_1100_c's picture

WW3 will be good for oil prices.

Sat, 01/02/2016 - 14:44 | 6988550 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Yes, but demand will nosedive which is more important.

Sat, 01/02/2016 - 14:47 | 6988520 Haole
Haole's picture

Save for full-blown WWIII, the money he manages is going to get summarily tuned over the next 12 months with calls like this...

Sat, 01/02/2016 - 17:33 | 6988981 FlacoGee
FlacoGee's picture

My following comment is unrelated to Hayman...  With that said, I would not predict the future.   Especially when it comes to oil, currencies, etc.    They have a habit of turning Niggadamas into a poor soul.

Sat, 01/02/2016 - 14:39 | 6988539 Omega_Man
Omega_Man's picture

what's Soros buying??? he is a 'market maker' with his CIA friends

Sat, 01/02/2016 - 15:40 | 6988592 falak pema
falak pema's picture

Beyond the probable fall of one of ZH's maverick, contrarian, Ron PAul breathing icons, lies the story of the crumbling foundations of Pax Americana's main plank along with its financial hegemony; two rotten planks linked to each other as the seal of America's global hegemony protected by the nuclear big stick clout, legacy of Hiroshima.

The story of Oil and the greed that it has engendered since that 1945 handshake, is the story of the success of 1971 BW revoke being turned around into the biggest Oil cum financial heist that the century has known.

Now its payback time as that Gordian knot unravels.

As Kyle Bass admits ruefully, the US shale frack bonanza makes it the beggar in the woodpile of fossil energy plays; behind low cost Oil nirvana of Ghawar/ Qatar/Abu Dhabi and new challenger Putin's Gazprom empire.

Being third man out is not confortable for the undisputed kings of the world : those who inherited the towering colossus that bestrides the world and has spawned the NWO based on slave labour outsourcing; making China co-king of the world order.

So now this winter of discontent brings the Empire to the crossroads of black gold that runs the world and Greenback that runs the economy on ZIrped mega debt.

All fairy tales built on the real economy's foundation of OIl monopoly thanks to Saudi money being recycled to the benefit of the WS bonanza games since 1971/73.

Lose Fracking shale and you lose the pre-eminence of petrodollar  in real economy as it brings down the Greenback God. But that kills the beanstalk of the virtual world the new frontier of "virtual clowd" economy of hi-tech.

Can't have that!

Can't have the old economy cannibalizing the new economy.

How to resolve that?

How to permit Alphabet, Amazon, Apple and Facebook to run the world of tomorrow protected by TTIP and TPP ? The framework of NWO going global?

Simple ! Push the ME oVER the rim, bring down Putin with it and then pick up the chips! Use Iran as co-culprit in the Shia/ Sunni massacre now being enacted at the expense of Syrac's millions and Kurdish collateral.

Thats the plan. Can they do it without Armageddon? Without MAD?

Difficult to say as the future is unknown. But the past tells us where the future heads.

Kyle Bass is sitting between the cracks of those two planks...

And that is the bottom line of this story until 2016 plays out and we know who will be top dog of the Empire without legs.

Meanwhile the debt clock clicks on and the petrodollar looks like the pale ghost of its past glory.

Sat, 01/02/2016 - 15:12 | 6988594 Bunga Bunga
Bunga Bunga's picture

Oil-fired power plants, that would make sense as energy investment.

Sat, 01/02/2016 - 15:21 | 6988617 Pareto
Pareto's picture

He's wrong on demand.

Sat, 01/02/2016 - 19:06 | 6989322 mkkby
mkkby's picture

Yep, and unless he was misquoted this was sheer stupidity.  If supply/demand was that unbalanced the price would be over 100 again.

If prices creep back up, demand will soften further.  At $2 gas, there is a lot of waste going on.

Sat, 01/02/2016 - 15:23 | 6988623 Dr. Eric Gold
Dr. Eric Gold's picture

I was a fan of Bass for some years until he plopped a trud in the punch bowl in 2010 when presumably after a week long grab-ass session at his ranch with his Chicago School of Economics cum CNBS guest yapper he proclaimed "The rich should pay higher taxes".  WTF??? Is he suffering from a new strain of white guilt? 

Sat, 01/02/2016 - 15:39 | 6988649 DirkDiggler11
DirkDiggler11's picture

I respect Kyle for the sole reason that he urged the University of Texas to take possession of phyz gold. Other than his call on taking phyz possession of gold, I recall very few of his other calls coming to fruition. He's turning into a "mini-Gartman". Just trade the opposite of his calls.....

Sat, 01/02/2016 - 15:50 | 6988679 Panic Mode
Panic Mode's picture

I personally think the rebound can only happen when small and medium energy companies in US start folding.

Sat, 01/02/2016 - 15:52 | 6988687 TradingTroll
TradingTroll's picture

Mr Bass needs to track currencies before commodities.  As long as USD is rocketing higher  there is no need to make calls on oil. As far as his gold well if his cost base was CAD then gold is off its ATM by about 20%. In USD he would be off 45%. Currency  impacts performance  big time, especially  commodities. In general I respect his ideas but specifically  I would never follow his trades.  Way too much hair on 'em the way he represents  them. 

 

 

 

 

Sat, 01/02/2016 - 17:35 | 6988989 FlacoGee
FlacoGee's picture

If you believe this, as do I, then you should be backing up the truck and buying $UDF.

He believes it is going to zero - I believe it is the trade that blows up in his face.

Sat, 01/02/2016 - 15:57 | 6988702 coast
coast's picture

funny how so many here pay attention and even invest in a system they loath, hate, and want to be destroyed....stocks are totally manipulated to the whims of those in control, and there is really no way to invest with confidence,or learning, its just luck.  Like a casino. Some make a few bucks but most dont, but as long as you invest you are supporting the system....gold and silver?  heck yeah, would seem the best investment.  Until they ban it, or tax it to a place where its worthless.  SOme say "they will never do either".  Well, many said that they would not spend trillions for bailing out the bankers...or indefinite detention without a warrant, jury, trial etc. I have many more examples...Did anyone stand up?  Did anyone start a revolution?  NO!!!!!!!!!!  They will continue to destroy everyone but them, and until people stand up with anger and arms, nothing will change...I hear that people lost their gold in a boating accident. Fine, they will just torture you until you tell the truth...Or, you will have to use it on the black market to trade.  Is it a good barter item?  no, people will need to keep warm in winter, (propane), they need food and water, and they will need guns and ammo for protection...Gold and silver is a beautiful thing, but they will make sure you cant use it...wake up.  I read zerohedge as one of my "go to guys" to see the state of the world.  I never read it in regards to gold/silver manipulation (I already know about it), or stock market numbers because its all manipulated....anyone in stock markets, or even in silver or gold, its fine it you already are set up with plenty of the essentials that are more important. I am not rich, so I simply make sure I have control over my abode, food and water, and protection items...you could have 100k in stocks or gold or silver, but it will mean nothing if you dont have the essentials, the spirit to protect those essentials, and a spiritual guidance.

Sat, 01/02/2016 - 16:30 | 6988785 . . . _ _ _ . . .
. . . _ _ _ . . .'s picture

"As to whether Bass will be correct..."

Right or wrong is so Hegelian.

What if he is just lying?

Sat, 01/02/2016 - 16:44 | 6988813 pakled
pakled's picture

"... global demand is 96 million barrels per day, the highest it's ever been..."

 

Hmmm. What about all the reports this past year of falling demand? All BS?

 

Wll let's just hope that armed conflict doesn't turn 96m barrels into 96t tears. Queue music here. A Lou Reedish style blast from the past.

 

 

Sat, 01/02/2016 - 16:53 | 6988840 ISEEIT
ISEEIT's picture

No human being 'knows' what will happen in this year of 2016. We do know that the motivation for engineering a higher oil price is high. We also know that the motivation for crushing oil prices is high.

Most likely?

Even (and especially) this shit is rigged too.

That's how sick it gets.

Sat, 01/02/2016 - 16:56 | 6988849 MarcusAurelius
MarcusAurelius's picture

Why anyone listens to the smartest guys in the room is utterly beyond me. You still have too much capital chasing far too few opportunities. Short of blowing bubbles what investments would you trust right about now based on business or fundamentals? They blew bubbles in oil for years and the over charging continues in places like here in Canada where the price is still .94 cents a litre and that is where I live which is cheaper than most of Canada. Yep, that would be still like you paying about $3.80 per gallon in the states. Crime? You bet. However welcome to government taxes. Now because the bubble got a little out of hand they just dump their shitty, cheap, dirty money into other areas to jack up prices where they know consumers will pay, like say....beef which has doubled and tripled in the past ten years. Supply and demand related? Uh no. 

Sat, 01/02/2016 - 17:54 | 6989086 OzFan
OzFan's picture

Bass needs to learn the lesson of the Great Depression when investors doubled down in the ensuing months after the Oct 1929 Crash, thinking it was the bottom...only to see stocks get wiped out over the following 1-2 years.

 

Moreover, the DOW hasnt even crashed yet....wait till that false matrix pops.....shitty energy stocks are going to get even shittier.

 

Sat, 01/02/2016 - 17:58 | 6989104 Imagery
Imagery's picture

Im in the Upstream E&P Sector.  Private E&P in Dallas.  I've met Kyle couple times.  Nice feller and bright.  But he is dead wrong on energy.  Demand is going down, not up.  And Euros have been at way under 1% GDP ever since Draghi initiated his $70B per month QE for how many months now?

Japan is bug looking for windshield.  Germany and US have CBers doing cartwheels to keep the wheels from coming off as well at +-250% Debt:GDP wiht falling GDPs.

The West is in the shitter just as China is now coughing up their overinvestment in Infrastructure for past 8 years and looking for someone to pawn off their own overinflated stores of commodities onto.

2016 is gonna be a real shit show for US Public TBTF WS Portfolio Shale Cos.  Stay the fuck out.  They are gonna crash as the double-edged sword of Negative IRR Wells that decline at 80%, 70%, 50% 40% 30% per year ...... meet Debt taht can not be serviced, much less paid down. 

Sat, 01/02/2016 - 21:09 | 6989605 HighPressure
HighPressure's picture

I agree with Mr. Bass, all the weaklings will die off and companies like Sunco and EOG will stand tall. Full disclosure, I bought both of them on Dec. 31.

Sun, 01/03/2016 - 01:08 | 6990038 bitplayer
bitplayer's picture

Kyle Bass is never wrong, Tylers. You headlined him as "The man who is never wrong" a year ago (or was it two?). In the interests of journalistic integrity and to better serve your readership, why not revisit what you have written? Revise it. Issue a mea culpa every now and again. "Sorry, folks, we were wrong, Kyle is not infallible." Would it kill you to be forthright, to ease up on the "As we predicted several months ago" angle? JESUS that gets tired. Please do your crazed readership a true favor by not plumbing the depths of yellow (financial) journalism.

Sun, 01/03/2016 - 06:10 | 6990147 squid
squid's picture

Bass is wrong sometimes.....just in timing, but not in content.

 

Squid

Sun, 01/03/2016 - 06:35 | 6990167 Going Loco
Going Loco's picture

But timing is EVERYTHING if you are an investor. No such thing as good investment or bad investment per se. Case in point: Gold. Good investment in 2001 or Christmas 2008 - very bad investment for anyone who bought the gold I sold on Bullion Vault Autumn 2011. You can buy almost any freaking' thing at the right time and make money if you sell it at the right time; equally you can buy the best thing in the world at the wrong time and lose money. It's bleedin' obvious. And still people don't get it. Sheesh.

Sun, 01/03/2016 - 02:19 | 6990071 hedgiex
hedgiex's picture

Go double down with him. EM countries need to finance their deficits and keep pumping. US will continue to be the swing producer for the World ? He means that the US Govt can direct the multinational Oil Majors to do its bidding or is it the other way around. All the Oil Majors need are to keep the oil and petero dollar (denominated in US$) to keep flowing and direct the US Bureaucrats to make it happen. 

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