For Kyle Bass This Is "The Greatest Investment Opportunity Right Now"

Tyler Durden's picture

Over the weekend, when citing from an excerpt of the latest Wall Street Week episode, we revealed what to Kyle Bass was the "best investment for the next 3-5 years": the energy space. Bass added he was 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. He also added that "the energy rebound, when it happens, will be comparable to the housing rebound post 2009."

Coming from the guy who correctly predicted the collapse of housing going into 2009, one should take his prediction seriously, even though as Bass himself admitted, he was early to this trade which led to "one of the worst years in the last ten" for his Hayman Capital. Judging by today's very modest reaction in the price of oil to a dramatic escalation in the Middle East, the market will need a far more dramatic reduction in supply before it agrees with Bass' thesis.

But what about the shorter-term for those who don't have a 3-5 year investment horizon? Bass discussed that after a question by Gary Kaminsky asking the Texas hedge fund manager "when you look at opportunities as an investor right now, what's the greatest opportunity?"

His response:

"Given our views on credit contraction in Asia, and in China in particular, let's say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there's one thing that is going to happen: China is going to have to dramatically devalue its currency."

He is quick to note that this is not a trade for everyone: "it's very tough to invest as a non-professional" very much the way buying CDS on subprme MBS was a trade only for a select few. That said, the trade - which we agree with thoroughly, and have repeatedly said that China has to devalue further, in fact we predicted China's devaluation just three days before it happened - makes a lot of sense. Bass continues:

"China many years ago attached its currency to the dollar: they hitched their wagon to our star very smartly because back then our goal was to depreciate our dollar through inflation. So we issued debt to the rest of the world to depreciate the dollar. And so now the real problem is China has hitched their wagon to our star, and their currency has effectively appreciated about 60% versus the rest of the world since 2005 and it's killing them... China's effective exchange rate moving up versus the rest of the world made their goods and services a little bit more expensive each year and now that labor arbitrage is gone. And if that labor arbitrage is gone, and the banking system has expanded 400% in 7 years without a nonperforming loan cycle, my view is we are going to see a non-performing loan cycle."

We fully agree with this as well: incidentally, China's NPL time, or "neutron" as we call it, bomb, has been extensively covered on this website in the past for the simple reason that while the official print here is about 1.5% of all bank loans are said to be "bad" or non-performing, the real number is likely around 20%, something which virtually guarantees a financial crisis in China at any given moment (more on that in a latter post). This is our summary on China's NPL debacle:

If one very conservatively assumes that loans are about half of the total asset base (realistically 60-70%), and applies an 20% NPL to this number instead of the official 1.5% NPL estimate, the capital shortfall is a staggering $3 trillion. That, as we suggested three weeks ago, may help to explain why round after round of liquidity injections (via RRR cuts, LTROs, and various short- and medium-term financing ops) haven't done much to boost the credit impulse. In short, banks may be quietly soaking up the funds not to lend them out, but to plug a giant, $3 trillion, solvency shortfall.

Incidentally, this is precisely what Bank of America just said overnight:

When debt problem gets too severe, a country can only solve it by devaluation (via the export channel), inflation (to make local currency debt worth less in real terms), writeoff/re-cap or default. We judge that China’s debt situation has probably passed the point of no-return and it will be difficult to grow out of the problem, particularly if the growth continues to be driven by debt-fueled investment in a weak-demand environment. We consider the most likely forms of financial instability that China may experience will be a combination of RMB devaluation, debt write-off and banking sector re-cap and possibly high inflation. Given the sizeable and unstable shadow banking sector in China and the potential of capital flight, we also think the risk of a credit crunch developing in China is high. In our mind, the only uncertainty is timing and potential triggers of such instabilities.

But back to Bass and his best trade idea - he conveniently even puts a time horizon:

"We are not short Chinese equities, but we are very invested in the Chinese currency: we think we are going to see a pretty material devaluation; we think it's going to be in the next 12-18 months."

Finally, judging by the ongoing collapse in the onshore and offshore Yuans overnight, which saw the currency tumble to fresh 5 year lows...

... it may be far sooner, especially when considering what Macquarie Capital’s strategist Thierry Wizman said earlier today: "the big drop overnight reflects policymakers’ willingness to allow currency to account for weak data." He expects the USDCNY to rise ~8% this year.

The full Kyle Bass interview is below, and the part discussing the best investment opportunity begins 10:40 in.

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Cognitive Dissonance's picture

How interesting (and possibly sociopathic) it is to attempt to 'profit' from global economic collapse. Exactly how are you going to extract your pound of flesh if the currency you eventually cash out in also collapses?

< being the first out of the burning building of course.>  /sarc

Cognitive Dissonance's picture

So.....does he get paid in jelly beans or pomegranates? I wasn't discussing his investment, I was discussing how he expects to keep all this 'wealth' he will gain with "The greatest investment opportunity right now' if the system is collapsing.

He, along with nearly everyone else, assumes either it won't collapse, it won't collapse that much, they can get out in time (then what do they do?) or they can extract their wealth in some 'currency' other than what is collapsing.

If we weren't talking about global economic collapse I would understand. But.......this time is different?

Mr.Sono's picture

That's why many Tyler's buy hard currency.

Cognitive Dissonance's picture

But at this point not many investment 'professionals' are.

Which implies either 'they' will suddenly wake up one morning realizing they might need some PMs.....or "We the PM Advocates" will wake up one morning realizing our PMs, while not a bad long term 'investment', was not the solution we thought it was.

Time will tell.

Soul Glow's picture

Well he sure does have a lot of nickles.

Uchtdorf's picture

Go long Silk Road. They have got to put all those single men to work somewhere. Of course, they'll put an offramp in the new road leading to Jerusalem. (Where else you gonna get that many soldiers rejoicing over the death of two prophets who lie in the streets for a few days?)

macholatte's picture


At a dinner party in D.C. it was Kyle Bass who whispered into Barry’s ear,

“Bitcoin Bitchez!”

Boris Badenov's picture

You'll get paid in gold or bitcoin, if you are high enough on the creditor's list. The problem is THERE ARE NO ASSETS after the frst 3% drop, everything is Poofed! because of the leverage.  There's nothing left.

old naughty's picture

So Macquarie "implies" china dropped the 7-ball on gdp, but gain a 7-ball on currency?

cheka's picture

this is same guy that 'best idea' was to short japan stock market

got crushed by the money changers

americhinaman's picture

indeed... just yesterday the "sticky" ZH article of the day was how bass predictions sucked, and he'd just had his worst year in a decade.

so when his predictions differ from ZH he sucks, but when they are the same he is a sage?  ZH quality has declined so much.

Laowei Gweilo's picture

ZH is always a little bit like that

one minute China is doomed, the next minute the US is doomed because of China's rise =p


btw Bass' picks have sucked most years, not just last year, since he was right about housing


he's good at broader macro as a bear maybe but he's a horrible bull and horrible bear or bull at equities. at least if his fund performance is the measure... you could throw random darts at the SP500 and have better equity performance than he has most years out of the last 5 years

mtl4's picture

Bass is a one hit wonder and his calls on the yen and gold (among others) have yet to materialize just like his double down on oil stocks will burn him too.


Look at Paulson too doubling down on Puerto Rico real estate right as it goes down in flames..........gotta love the ego trip.

UltimateWarrior's picture

So oil will eventually drop to 0? How much lower can it go with demand reaching record highs each year?

NoPension's picture

Very telling point in the movie ( non - fiction, for newbies) " The Big Short".

The wheels had come off the cart, and the main players' biggest decision was, how many cents on the dollar would they " settle" for. Yeah, they won, and HUGE!, but the losers did not have the cover, or were going tits up.

Like getting killed by a guy running a red light. Sure, you were right, but....

Boris Badenov's picture

BIG SHORT was writen 2010, better book was The Greatest Trade Ever, Zuckerman, about John Paulson. INSIDE JOB on Youtube is even better.

PS- If Bass was such a bigshot, how come he didn't get audited by the IRS 4 times like Dr. Burry?

I would question Kyle about his University's gold: Yes, it's widely publicized that they have REQUESTED delivery, but have they RECEIVED delivery???

There's absolutely no followup these days, read the headline and accept that it happens the next day. How long is Germany waiting for its gold from the NY Fed? 

FreedomGuy's picture

Burry sent a letter to Congress offering to tell them how he saw the collapse coming. He was under the delusion they were not in on it. Sachs and the financial houses are the biggest donors to Congressional leaders regardless of party. Trial lawyers are next.

My guess is his letter went to Barney Frank, in charge of the subcommittee that overseas Freddie Mac and Fannie Mae. 

The IRS has become the Mafia enforcer for the State. Their job is to intimidate and make you pay. Winning and audit is still losing.


Boris Badenov's picture

They clawed back over $1,000,000 according to Dr. Burry in his speech

FreedomGuy's picture

Good video. I like his comparison with fundamentalist religious beliefs.

It is also interesting that he percieves no real reform, no lessons-learned and further catastrophe.

I agree.

Charles Wilson's picture

Somewhere, Bernanke is thinking, "Mission Accomplished".

No matter how many people had to die...

ClassicCommodity's picture

Still waiting on this Japan "collapse" to happen.

mkkby's picture

Yeah, Bass really jumped the shark a long time ago.  Another 1 hit wonder.

His oil call is 10 years early.  His china call is 6 months late.

To understand china, all you had to know (reported for 10 years) was BUILDING VACANT CITIES.  Who the fuck does that?!?  Answer -- Someone in desperate need to cover up a momentus scam.

Unfortunately, in this totally moonbat world we live in, knowing DOES NOT equal profiting.  When the fraudsters own the central banks, reporting agencies and regulators, even a city-sized ponzi can be kicked for longer than anyone can remain solvent.  <love those jesse livermore quotes>

roddy6667's picture

China is not building empty cities. The timeline for populating a city in a new (previously unpopulated) district is about 15 years. Many western reporters are still regurgitating 5 year old articles about Ordos New District, while the place is filling up and thriving. They also don't know a place has been sold for cash and is sitting vacant for very good financial reasons that westerners don't know about. The builder has repaid his loans and has moved on to new projects.

"According to the same research by Standard Chartered, typical occupancy rates for a
new district in China during the initial phase (first five years of a development) are
under 20 percent. They then increase to around 50 percent in the rapid growth phase
(six to 10 years) and then to between 70 and 80 percent in the mature phase (11 to
15 years)."

China is in the early stages of moving 300 million rural citizens to the cities in the next 20 years. 200 million are already there, living in barracks style workers' quarters for the people building the country's infrastructure. They would love to buy one of these units and send for their families back on the farm. Manufacturing jobs must be in place for them first.

All these people who rant about the "empty cities" have never been to China. They don't understand how new housing operates there, and they are ignorant of the government's plans to change the nation to a more urban mix. If you are in China, it is hard to miss 200 million workers in temporary quarters in every city and town.

This doesn't stop them from pretending to know what they are ranting about. They probably know more about the dark side of the moon.




prudent1nvestor's picture

Cheers Roddy. Once in a while you find a sensible, educated comment on here..

MrSteve's picture

I think the demographics in China have been omitted from your analysis. The need for extended family to care for elders tanks when there are four in-laws living off two wage earners. If the wage earner can't find a wife due to one-child population distortions, then he has no one to care for him in his declining years and so the society's norms collapse.

China will get old before it gets rich is a demographic reality. The recent relaxation of the one-child policy shows they have figured this out in Peking, (the old spelling).

August's picture

For us non-connected, non-brilliant types, it's probably just better to suck it up and work for a living.

Plumbing looks good.....

BarkingCat's picture

Sooner or later everyone need a plumber.

DaveyJones's picture

I can't decide to lay a pipe, smoke a pipe, or just dream one 

WillyGroper's picture

You got that right.

Got a tankless on the fritz.  Plummer wanted to charge me $93.50 per hour for him to sit on hold with tech support for 2 hrs as I did it for him.   OK that's $187 & no part or work done.  So I sectionalize the trouble & order the part @ $73.  Questioned him on training & service specs.

These bastids running the company are literally shifting the plumber's training on to the poor schmuck that allows it. Plus windshield time.

After talking w/tech support, further isolated, ordered the part & will do it myself.

Hells bells, I can't be more lame than the way they operate.

No doubt that bill would have been in the area of $400 for a defective servo.

Crisismode's picture



"We the PM Advocates" will wake up one morning realizing our PMs, while not a bad long term 'investment', was not the solution we thought it was.


Okay smartass, What Exactly Is YOUR solution, that will end up

"as YOU thought it was"?


Easy-Peasy to criticize . . . Exactly with is YOUR solution for wealth preservation?


Put up or Shut up.

opt out's picture

dichotomy infraction: can't talk tough and use the term 'easy-peasy' in the same post. 


or maybe you're a power bottom.

The Comedian's picture

dichotomy infraction #2: can't be a wise ass and use homosexual jargon in the same post. 

Cognitive Dissonance's picture

Thank you for quoting me out of context.

Personally I think there is no 'solution', at least not in this insane asylum, only survival in some form or another via a more self sustaining lifestyle.

On a daily basis Mrs. Cog and I are working towards that goal.

Bendromeda Strain's picture

Yeah - we caught your manifesto. 'Those who "think" they are awake are worse off than the truly ignorant'. There was little value added in your piece, with the overriding point being "we are on the mountain, and you are not".

I dare you to accuse me of quoting you out of context - you will be wrong. Try rereading it without the hubris with which it was written.

Cognitive Dissonance's picture

And I double dare you. Shall we use pistols spit balls at fifty paces?


gruden's picture

The Solution is the Final Solution: we're all dead.

PMs are currently defined by a market.  We may disagree with that market due to manipulations, but it is the basis point upon which value is determined.

In a collapse scenario, there will be no market, or we might not have access to it.  Valuations become very fluid and self-determined.  If I have a sack of apples and you have some silver coins, in a pre-collapse scenario you're probably going to insist on me giving you a lot of apples in exchange for a single silver coin.  But in a post-collapse scenario, I may decide to keep the apples because the silver has too little meaning, whereas I could use the apples to stay alive.

In an economic collapse situation, the only thing guaranteed to have value is that which sustains life: food, medicine, clothing, heat sources, etc.  The only PM I see having value then is lead, and devices which propel it at high velocities. 

In discussions I have had with others, I always recommend gathering the necessities of life first, and if someone wants some PMs later then fine, but take care of necessities first. 

USisCorrupt's picture

There are just way to many roads that can make the future very uncertain. Diversification is key, look at the Bosnian occupation 92-95, if one had 1000 Bic lighters for each year of the occupation one could of lived a very good life just bartering Bic lighters.

Food, water, guns and ammo are at the TOP of the list to have.

There will be blood in the streets even here in the US within months, don't fool yourself.

Mr.Sono's picture

CD, that's why it's important to be on both side of the trade. Have pm and have digital currency. This people either to smart for us or we smarter then them. Today we look stupid, if you been on pm side, but how long will it last? I did really bad with silver but my Ira sky rocket, I was on both side of the trade and so should you. We will never knot the truth, but we can sense things. Good luck

CClarity's picture

I'm pretty sure Kyle Bass has a lot of PMs.  And not so P Ms.

Remember, he's the one who suggested and helped approve the U of Tx taking physical delivery of $1 billion in gold bullion and for Texas building a vault for gold - so they wouldn't rely on someone else handing it over to them in a time of need (collapse) or "confisgation"

And the nickle in nickel trade, where he bought $1 million in nickels because the value of the metal was greater than the value of the coins.

Bendromeda Strain's picture

If you would bother to remember correctly - there was a time when KB would openly recommend PMs to the little people as he readily admitted that small fish would barely navigate the default flood. It has been years since Bass has backed up that line as far as I know. If I am wrong, cite it - I would be pleased.

As far as I am concerned - what happened to Bass' slam dunk "Japan is a bug in search of a windshield" trade?

Bay of Pigs's picture

And the Japs are sunk. His timing suck though...

mrjohn's picture

Please refain from the term "Japs", all it does is show racism is clouding your judgement.

The Japanese are tougher and more resourceful than Mr Bass' numbers assume. They have been running their country since neolithic times. They deal with earthquakes, tsunami, landslides, active volcanos, and typhoons. It is crushingly hot and humid in summer, bitingly cold in winter. The country is mountainous and difficult to traverse, and there are few natural resources. The only real resource they have is people. The demographic issue is a rebalancing to a sustainable population.

And the food is great.

Numbers keep the score, they don't steer the ship.

BringOnTheAsteroid's picture

Japs built how many nuclear reactors on one of the most active eathquake regions on the planet?

Don't just limit your questioning to this.

Of these reactors how many back up generators are within easy reach of a destructive tsunami?

How many spent fuel rod pools are suspended tens of meters above the ground?

The dumb bastards got it backwards. The back up generators should be tens of meters above the ground and the spent fuel pools on the ground.

Japan is toast.

monk27's picture

Kyle Bass has enough physical gold to cover his other "investments" in case of a catastrophic collapse. He keeps it at home, a very well guarded ranch in the middle of a huge property. He also has a lot of nickels (for metal value), which are actually made of nickel. The guy knows his stuff... He is also an accomplished shooter !

e_goldstein's picture

Kinda suprised that his newest investment isn't nickel-plated brass.

Bobbyrib's picture

You forgot a third option Cog. You wake up to a government official knocking on your door with any "digital receipts" you might have attained while buying PM's. He then asks you where the PM's are and you noticed armed men behind him.

Either through confiscation or devaluing the price further to a point where they buy it for a price that will be considered robbery (because it will be through price manipulation) I think the oligarchs will wind up with most of the country's PM's.

Stackers's picture

FX brokers let you leverage at like a 1,000 to 1 right ?

Handful of Dust's picture

The best investment for a person holding yuan is gold seems like it's a no brainer.


Those investors who liv in Australia and/or Canada who bought the hard asset gold are sitting pretty as their paper currencies plunged 40%.

FreedomGuy's picture

They buy property in America, Canada and maybe Australia. It is essentially the same idea, to guard against currency devaluation as well as move capital out of government control.