For Kyle Bass This Is "The Greatest Investment Opportunity Right Now"
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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Hush Boris... don't say that in your out loud voice "the Great Cognitive Dissonance". He'll be walking around here for weeks with his chest all puffed out and we'll hafta rehire an Oompa-Loompa to deflate him again lol.
We all know, we being those who've read more than one KB related article, that he turns profits into real wealth as he goes. He doesn't let it ride, so to speak. He has working capital that he keeps working but the take is taken out as it should be.
He'll convert all his shekles into physical nickles and live in his giant survivalist compound staffed with former blackwater mercenaries. They accept nickles as payment.
A billion nickle here, a billion nickel there. Before you know it you're talking 'real' money. :-)
China will soon start QE just like everyone else. There is no safe haven and Mr Bass is under-estimating the risks. His Japan bet didn't turn out so well, and I doubt his bet against China will fair any better.
In my opinion Brazil would have made a far better short. Smaller Emerging market countries are far more vulnerable to Debt than a major industrial power like China. Why did Mr Bass miss Brazil?
He may be a one trick pony. Heck, I called out the market crash to my friends a few months before it happened. Does that make me someone to look to for predicting the next one? (spoiler alert: NO).
But team tyler seems to agree with his assessment here. And that carries some weight. Although Tyler has sounded like a broken record for years now... they have made a hell of a lot of great calls in the meantime.
Disagree. It does make you someone to look to, amongst others. Doesn't mean you are the sole source, just someone who's been right before.
On the other hand, we could ask Cramer or "We are modestly long but not overly so" Beardo.
Take your pick.
Unless I misunderstood the reading, he's not short Chinese equities, he's short the Yuan, in anticipation of QE, which will devalue the currency.
Correct, and that's a sure one given debt mountain China has created.
B.S
I'm not going to take investment advice from this guy - "....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."
Expect more of this.
I think Kyle is reading Byron Wien:
5. China barely avoids a hard landing and its soft economy fails to produce enough new jobs to satisfy its young people. Chinese banks get in trouble because of non-performing loans. Debt to GDP is now 250%. Growth drops below 5% even though retail and auto sales are good and industrial production is up. The yuan is adjusted to seven against the dollar to stimulate exports.
https://www.blackstone.com/news-views/press-releases/details/byron-wien-announces-predictions-for-ten-surprises-for-2016
You know, I see this "China's debt to GDP is 250%" number thrown around all over the place, with no details, and I am sure the number is meant to be compared to US debt to GDP which is stated to be just over 100%. but what is actually included?
American federal governmemt debt to GDP is the number above, but even that is pathetically understated on a GAAP basis. not included in that number is all of the states' debt to GDP, and local governments, etc.
So what is actually included in the now-oft-stated 250% Chinese debt-to-GDP figure? Does it include businesses, local / provincial governments? Does the Chinese national government even have debt? Aren't they trying now to float Yuan bonds internationally, in order to create a market / trading basis?
Figures lie and liars figure.
Not sure what to make of these 250% either. However, I live in America and the more I research the more I realized Americans workers are finished in more ways than one.
Here is my logic: China depreciate their currency, endless. Suck whatever left over disposable income, mainly dollars, from the west. Build more factories. Build dollars reserves by the trillions. Then uses these dollars to buy oil. Now US (workers), with less income, less jobs, will be competing for oil with China, most likely subsidized by the Chinese government. It means, US workers will be driving less and less.
Then, American workers ask for wage-inflation. No way, José.
Or, high tariffs on Chinese imports. Wall Mart says, no way, José.
Then, to add insult to injury the US government keeps creating more ‘unfavorable to American workers’ trade agreements.
So, by Kyle betting against the Yuan on the global casino, Kyle is betting on the downfall on the US worker. As if the US worker is standing firm as is.
Okay, so all the U.S. government has to do is slap a little extra fee on the export of U.S. oil or American oil producers simply start charging more or demanding gold instead. But I digress...
Please stop acting like there is true price discovery anywhere in the world right now, because there isn't.
Besides, the truth of the matter is that the U.S. is still importing over 7 million barrels per day, and guess what, none of it comes from China!
If you have energy resources and a military to protect that, you are in the drivers seat. If you don't then you are fucked if you cannot steal them from another tribe. Been this way since the dawn of man.
Same as it ever was.
that is the combined total of all sector debts, public and private, likely the one originally from mckinsey quoted here
China’s Monumental Debt Trap - Why It Will Rock The Global Economyscroll down for the breakdown by sector. China has a corporate debt problem, sovereign and household, not so much.
you can go to Mckinsey(or google) for the full original pdf
China will be damn lucky to floor the yuan out at 7.
I lived in China from 2004-2010. Yuan was 8.37 when I moved there and about 6.70 when I left. I can see it back above 8
how's his Japan is fucked trade working out since 2011, he'll be right eventually like a stopped clock
the “miracle” is attributed to the genius of President Putin
http://thesaker.is/the-volga-flows-into-barada/
nice link
japan is fucked. but the BOJ is buying every equity in site to prop it up. where you been?
i think you missed the point but,
maybe he can hire you to field investor questions at his next soiree.
Someone confronted him on that one in an interview, he said he did well on the currency side of the trade but not so much on the derivitave bets, still he claims to have made a profit overall. I think his logic is right on, unfortunately logic isn't what drives things anymore, unless it is of the twisted 1984 variety.
Stopped clock has nothing to do with it. Luck is about the only deciding factor in this mess anymore, the more certain you are of the way the wind blows the more you need to reassess. Only certainty left is the tag line underneath this sites logo.
Fuck a Bass, so China has to devalue its way out of a debt crisis, just like the u.s. did? And what's happened to the USD since the great American bailouts? Oh yeah, it's gone up. The bad credit / bad money / abuse of trust is everywhere, nowhere more than at the core. You go ahead and stay long USD Kyle, hope it works out for ya.
There are different games afoot now, don't trust any wall st types, even the supposedly clear-eyed bearish ones.
You missed your currency history. There were worldwide devaluations and our situation is the least ugly. That is 50% rational and 50% faith.
Because of endless government interventions, I suggest any "investing" done these days is more akin to gambling. It's like playing on table where you are not really sure of the odds or even the rules.
And that is PRECISELY why KB is useless as a money manager. He THINKS he knows the rules, but the little guy behind the curtain decides all. And that little guy likes the status quo.
When I started studying trading, everyone wanted to follow the ax (usually goldman). So why are all these money managers trying to trade against the ax??? I'll know KB is really smart when he stops fighting all the feds out there, and trades the fucking status quo.
Wanna make money. Fade all the Kyle Basses out there and bet on the can being kicked again and again and again. Just have a little PM at the bottom of your favorite lake for that one time in history when it finally can't be kicked another time.
As I recall his Japan bet, while losing mildly is currently hedged with a two bagger.
And yes, he's early to the party, but so was DR. Burry
Chinese KnickeRs bitchez!
'Markets are crazy, every moment one guy buy, second sell and both think that they will make money'
~ anonymous Chinese trader
Man who run in front of car become TIRED... Man who run behind car become EXHAUSTED!
Man who stand on toilet high on pot
Man who post chinese proverb on ZH 'high on pot'... OH WAIT!
Have you read the book, Nut on the Barbwire by Wan Hung Low?
Thank you. Thank you. I'm here all week.
"Every time think invest in China finish, few minute later want invest again"
- MSG addicted Chinese investor
"you could blind-fold these people with dental floss, you don't give them keys to a car!"
Thank gawd for rich jews to tell the goyim what kind of investment scam to invest their dwindling shekels in!
Go jews!
You are the (self)chosen master.... race!
Lead the goyim to perdition!!
Whooohoo!
Ha!
"Behold, Zero Hedgers, the racist, imbecile hard money man!"
Hey Ghost, he went to TCU, that would be as funny as Jim McMahon going to BYU, but Kyle didn't play quarterback. He's Jewish? You know this how, because he's circumcised? Jews are the master race and there will be someone at your door 0 dark 30 to take your wife and daughters and put them on the street, and take your money, no checks accepted.
So?
The name "Bass" is very kosherite. Every person I know who was named after that gifilte was ko$her.
Like jews are never "christian", or muslim, or any other hoaky religion.
Pushaw!
You idiots are going to have to wake up earlier in tel aviv to pull the wool over my eyes.
Like I am afraid of the ko$her nostra.
The only tough jews are actors in movies.
Think about that while you bugger your kids tonight.
Yeah, if it were only all Jews. Tell you what, just drop out of anything that involves lots of Jews like the arts, medicine, science (that crazy Jewish Theory of Relativity!) and sports...okay, maybe not sports.
You are far too smart to be fooled by any Jews. I can tell.
"Thank gawd for rich jews to tell the goyim what kind of investment scam to invest their dwindling shekels in"
You'd post a negative on the Jews if the topic was the weather. The Jew-haters do get a bit.... boring.
...so china bought all that gold the last couple years while the yuan was strong? ...just a coincidence.
Why doesn't the putz Kaminsky just STFU and let Bass talk???
one note on pipelines. holding companys will REVERT, ie buy back the pipeline MLP for pennies on the dollar
been watching.
Gartmans up next (cnbc) to call the bottom in oil. So I am waiting for that
What happened to Japan, Bass?
That's it! I'm shorting fortune cookies.