Kyle Bass Hints What The "Greatest Trade He Has Ever Encountered" Is

Tyler Durden's picture

Heyman Capital's Kyle Bass, who as we reported two weeks ago returned an impressive 25% in 2016, spoke to Bloomberg TV's Erik Schatzker and likened President Donald Trump’s trade and tax policies to gasoline which will accelerate an economic "restructuring" - a polite word for crash - in China.

Discussing a topic he has been particularly focused on since late 2015, Bass said China has “recklessly built a system that’s going to need to restructure and that just so happens to be metastasizing right when Trump becomes elected. This is a fire that’s been smoldering and it’s now starting to burn, and Trump is just more gasoline." As he put it later "in lifecycles, what Trump is going to do, he is going to speed everything up." That statement is absolutely spot on, on many different levels as we will soon find out.

Bass also said that imposing tariffs on Chinese imports could have “profound consequences” for the nation’s economy, where credit over the last 18 months has grown by $6.5 trillion while deposits have grown by half of that, or just $3 trillion, "so credit is growing exponentially, China has to fund enormous moves in credit growth just to keep in roughly the same place. We call it running to stand still."

He mocked "the idea that China is now the driving economic power in the world" calling it "illusory or somewhat of a fallacy" and as we reported in early January, confirmed that "it’s safe to say that the Asian theater is where we’ve been focused.”

Aside from China, Bass echoed recent favorable remarks by both Ray Dalio and Stanley Druckenmiller about the impact Trump would have on the US economy, which he said would now focus on labor over capital, and the resulting increase in capital investment could to a jump in productivity, all of which is happening near full employment and when combined with tax repatriation, will be "extremely stimulative" but also be inflationary. The impact will be “positive for the United States and slightly negative for the rest of the world,” he said. “But it’s not the globalist nightmare, in my opinion.”

As he says, if you need to boil it down into a soundbite: "short rates, dollar strong", but the question is how do you get to pay for cutting the corporate tax rate, to which his answer is that a border tax - or "taxing the trade deficit" - is the "only way to pay." However, if various retail-affiliated lobies such as Nike and WalMart offer enough resistance, Trump may simply enforce tariffs.

When asked how he played the election, Bass said that he waited until the results started coming in and found the market's initial reaction to a Trump victory as irrational, and that just like Carl Icahn, he took on very "pro-growth" positions in currencies and rates in "huge amounts" later that night, in what ended up being an "easy trade."

* * *

But what we found most interesting is a section discussing inflation in Germany and German Bunds, in which he may have dropped a hint to help us identify a trade he previously dubbed the "greatest risk-reward profile ever encountered." Recall in his year end letter, Bass said the following:

One opportunity in particular has the greatest risk-reward profile we have ever encountered in our decade of being a fiduciary. As investors of ours, you are positioned to take advantage of one of the world’s greatest macro imbalances.

The trade Bass may be refering to is the same "short of a lifetime" first brought up by none other than Bill Gross in April of 2015, namely shorting German bunds, and which promptly crashed just days after the Gross prediction almost two years ago.

Why do we think so? Because when Shatzker asked Bass if "there are any natural Trump trades right now" Bass' response was quick and to the point:

"Real rates in Germany are at the lowest level ever right now. Inflation in Germany is spiking. It’s not even moving in a linear fashion. You have even seen members of the ECB and the Bundesbank speak today about the fact that I think we are going to see inflation running much hotter than any of the central banks thought it would. Therefore I think the move in bonds is just beginning."

It sounds that Bass now in agreement not only with Gross, but also Jeff Gundlach, who in his recent public webcasts has continued to hammer the thesis that shorting German Bunds has huge profit potential, and if indeed Bass sees the Short Bund trade as the greatest opportunity of his career, the Bund crash and VaR shock observed in May of 2015 may be imminent once again.

* * *

The rest of the Bloomberg interview, predictably, focuses almost entirely on China, where the crash thesis is well-known (if not the timing), and Bass expounds on the various ways one can play the upcoming crash, although - like any smart hedge fund manager - he won't explicitly state for the record that he is short the renminbi or other Asian currencies. Toward the end, Bass takes an interesting detour in which he praises the Russian economic response to the recession of 2015 in what appears to be a decidedly bullish outlook on Russian assets, and when Shatzker proposes summarizing the Bass interview by saying "short China, long Russia", Bass responds "that's a good place to start"

Watch the full interview below:

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Croesus's picture

If Germany tanks, maybe the invaders will have to go spite of Merkel's bullshit

There'a always a bright side...

Jim Sampson's picture

But how does Joe Blow trade this?  I wish he would kind of talk to regular people rather than people that already know their way around.

xvvx23's picture

Short RMB.

EUR / USD ?  Probably euro down if china down.  Also short EMs.

Long US assets, US real estate.

Not too difficult really to think of plays if his economic prediction is correct.

Jim Sampson's picture

So hold the Dollar?  Doesn't sound like you would make the most out of the trade.  Anything that trades in the US that are double short bund? 


This isn't easy for everyone. 

xvvx23's picture

I agree its difficultfor a small guy. These guys have $mm's  to invest. They can wait years. The small guy cant wait for years for macro to play out.

You could put some money into macro or currency ETFs. If more risk tolerant i guess you could make some forex trades. ... Possibly many of the things already started to happen and are in progress  in last few years like oil, euro, ems etc etc.... Sure they sound like boring trades but doesnt mean they cant go further.

Leveraged etfs/forex/futures all have their own problems.

as a thought maybe find a stock that benefits from china blowing up.

new game's picture

think of two buckets; with one filling and the other opposite. bonds and stocks.

long or short as you desire. hedging plays both buckets, but be carefull, goal is to stay dry.

a clean pore back and forth, with some handling fees...

i don't like buckets. i will sel ya a bucket though, lol...

i like the land below the buckets and spillage is good, grows my stuff... 

also, known as trickle down.

fx's picture

Where is the fucking problem? Short the German bund future. The most liquid futures market in the world. It used to be, at least. It probably still is.
But I think the 5 year BOBL-future may offer an even better risk reward. True, the leverage is lower than for the long bond. But with 10 year bund yields at 0.45 % as I write, you have the 5 year yields sitting at a negative (!) -0.37 %.
The risk is, what, the old high, some 150 ticks (1.500 Euro) above the current price. The reward could be easily 4-5 times that. A no-brainer in my book.
Imho a better risk-reward than the ten year bund (currently at 161.7) which could go 60 Bps in yields either way from here. If you would hold it unless it takes out its all time high, the risk is about 6000 Euros. the reward could be 10k to 26k per contract (the lows of 2014 and 2013, respectively at 151 and 135) I'd stick with the BOBL here.

Jim Sampson's picture

Was looking for DRR or EUO but thanks anyways.

Mark Urbo's picture

"Sum ting til wong..."

Save_America1st's picture
Kyle Bass Hints What The "Greatest Trade He Has Ever Encountered" Is.....


nickles...keep stackin', bitchez

I got my rolls ;-)

Notveryamused's picture

Joe Blow should buy Bitcoin. It's the hardest to shut down means that Chinese citizens will use to evade capital controls as they try to escape the declining Yuan & it has a relatively low capitalisation.

(Once you learn about BTC you can dabble in the even more privacy centric ones that will outperform BTC.)

As BTC increases you can accumulate gold/silver with your profits but don't expect them to go Bigly because a strong U.S. dollar should allow them to play the PM suppression game for a few more years to come.

papaclop's picture

Don't hold your breath on that strong dollar.   The price suppression of the precious metals has almost run it's course too.

samsara's picture

For those not familiar, Bass has been buy lots of US nickels, melt value is more than 5 cents.

Buy nickels

Oracle of Kypseli's picture

But melting them at some point will get you locked up for defacing US currency, unless they are no longer US currency.

samsara's picture

Its only a crime if you try to pass it off as money.

Hence, you can buy jewery of nickels and dimes quarters that have been etched.  Etc

Save_America1st's picture

it's just that nickels are actually made of commodity metal...75% copper and 25% nickel, and they will never be worth less than 5 cents each due to the mint value of 5 cents.  But now the value of nickel and copper per pound have risen to a point where it actually costs the U.S. mint more to make a nickel than the 5 cent value of each coin. 

This will only go up in the future due to inflation of the worthless fiat paper dollar (which is worth about 2 cents compared to it's dollar value back in 1913), Bass has made the call that nickels will end up being worth many more times the 5 cent face value stamped on them as time goes by.

So basically, nickels are the next "junk silver" type of coinage.  Junk silver coins, which are all pre-1965 90% silver coins in dime, quarter, half dollar and dollar values are much more valuable in terms of their silver content (and 10% copper for strength) today compared to the stamped monetary value on each coin.  They became hoarded after 1965 since people will always save valuable real money and spend the worthless junk that all government inevitably debase their coinage down to using actual junk metals instead of real money:  silver and gold

Nickels therefore are pretty much the only coins left still being minted out of a commodity metal, and will one day be minted of out junk like zinc and magnesium if at all....who knows.  Read the below article.  It's just a matter of time, so it makes sense to do as our great Grandfathers and Grandfathers did and start to hoard these coins now and save them for the future when they will have a much higher worth in content.

Nickels will never have numismatic value though, so don't think you're going to get rich on them as far as collectors items goes.  They aren't like Morgan dollars.

But they will still always be worth 5 cents no matter what...and in bulk, when sold as scrap for melt value could end up being much more valuable.

New nickels, like pennies won't be worth shit in melt value.  But older pennies made of 100% copper will always be more valuable in bulk.  I think copper the penny at one point before they changed the composition used to cost the U.S. mint 2 cents to produce due to the rising cost of the copper content.

samsara's picture

Unfortunately us average people generally can't capitalize on his particular trades. He is a really smart guy though. Very self confident more so than boasting . He is speaking to people at his level of play.

But we Can get a sense of direction of things that may have implication in your personal plans.

If you hadtalked to the guy in the movie 'The Big Short' and he told you of this deal he was doing (shorting the whole housing market) you might be able to not get in on his trade, BUT you could decide not to buy those to houses to flip(2004ish) That might have kept you from being bankrupt. See what I mean.

Bass is playing at the multimillion dollar minimum black jack table. I play at the $5 table myself

I'd listen to him, use what you can

FreedomGuy's picture

I love listening to Kyle Bass. First, you can tell instantly he knows his stuff. Notice, how he and his staff have figured this out all the way to the future secondary and tertiary damage. Second, he reasons it out for you and tells you why. Third, he has some humility and does not speak in absolutes or certainties. He mentions he has gotten burned, too. Last, his track record is pretty spectacular including the election night trades. 

What I enjoy more is that his investing comes from macroeconomic analysis and political analysis, not trends or templates. I like the view of the world I get which necessarily includes dealing with central planners. 

Vlad the Inhaler's picture

Just buy the Germany ETF, $EWG.  Inflation means all assets become inflated including equities.  It's got liquidity even in the options.

hedgiex's picture

China's economic implosion will be drawn out as they cannot afford to take a one-off downturn. You can invest (long term) and need not take short term trade. You take profit from market volitility if there is a oversold situation. Such a big Ponzi that is centrally controlled takes a long time (years) with more props to sink. The system does not protect property rights, so do not short on domestic securities in their domestic institutions. Play the Yuan in which they cannot control. All the maliases will have to be reflected in the Yuan. You can also use proxies like hard commodities in which China had been the greatest importer. Use options to leverage. BTW, Bass is smart. 

halcyon's picture

You short long gov bond ETFs esp. levered ones. You go long USD/Gold paor (watch your entry). You play german bunds via futures or turbos.

High risk, high reward. Manage it. Spreads are better.

justinius1969's picture

Start buying some puts on the Bund expiry march onwards.. It s going to be a Annus horribilus for bond markets in 2017 .. 

Zero Point's picture

Luckily, Muslims LOVE shitholes, which is why they recreate them wherever they go. Germany is just further along to being just like home, sweet home.

Clowns on Acid's picture

The Spanish and Eyetalian bonds are looking like they are ripe for a face rip as well.... I guess Bass is looking at liquidity in concentrating on the German rates.

Spigot's picture

Bass already has played the southern euro-Zzzzzone bond play started it back a few years ago.

besnook's picture

shorting rates and the dollar are the trade of the next coupla years. they finally let the inflation genie out of the bag as the last resort fix. they won't be able to control until the economy has to be volckerized.

lasvegaspersona's picture

If US NPV is really -200 trillion (as per whatisname from BU) then a mere repeat of Volker's routine won't even come close. We would have to 86 the way or the other.

Bass knows this and is just playin for now...hell the guy has a ton ofnickles...prolly some gold too.

Arnold's picture



I don't think that this Fed has the balls to raise rates quick enough to control inflation.

Timid seems to be everyone's middle name.

Spigot's picture

FED wants inflation and will lag rising interest rate in order to push inflation upward to attempt a reversion of Debt/GDP back to 100%. That is what Mr MoneyPants did before Volker was brought in to halt the Inflation Monster.

ronron's picture

buy nickles. 

King Tut's picture
King Tut (not verified) ronron Jan 25, 2017 7:05 PM

Hey, man- it's Hayman Capital

jeff montanye's picture

the other times a single country had as high a percentage of world monetary reserves as china does now was the u.s. in '29 and japan in '89.

RiverRoad's picture

How "Sweet it is!"  as J. Gleason would say.   LOL.

Spigot's picture

All "reserves" now are bonds. Most of these bonds have a close to or actual negative interest rate. I am not seeing any safe haven here. As interest rates rise (they are and will), and as derivatives trigger and are systematically written down due to "system risk" then ALL bond rates will rise in an even more powerful fashion. Selling bonds with low or negative interest rates in a rising interest rate environment is suicide. I suppose CBs can print cash or manufacture digital currency account entries of those bonds, but the logistics of physical cash are horrific unless they start printing $100,000 bills, then $1,000,000 bills, etc.

This probably will "escallate quickly".

BigJim's picture

If German government bonds rates start rising, then rates for the rest of the EU will go up too, and a lot more quickly. Why wouldn't the ECB just step in with more QE?

If you genuinely believe inflation's about to take off, it seems more sensible to buy equities; TPTB don't mind if stocks go up, but they REALLY don't want government debt to lose value; too much hinges on it.

Or is the idea the ECB owns so much EU government debt now that it doesn't matter if rates rise?

Stanley Lord's picture

Bass, Fuck off Hillary lover.

ZH readers, you really think these hedge fund clowns care about you or are telling you what they are thinking?

Listening to them is like mourning Mary Tyler Moore-you dont know them and they don't know you.


HRH Feant's picture
HRH Feant (not verified) Jan 25, 2017 7:10 PM

Wow that is an easy trade! As far as China, it sounds like shit is going to blow up. Oops! No wonder China has been rattling the war drums. Easy way to divert the public's attention to the right hand while ignoring the left.

Consuelo's picture



Silly goose...


Havent' ya heard...?  China's been blowing up/going down/hard-landing/crash-landing/death-spiral/implosion/explosion, etc., you-name-it, since....   At least 2008... 

BeanusCountus's picture

He's smart, and I listen. Not always right on everything though. Seems to me he was big on Japan collapse a few years ago. Made a good argument for that as well.

Blankone's picture

His nickles play was cute but simply stupid.  How much profit has he made, they will always only be worth a nickle.

He says Trump's actions are going to accelerate problems in other countries currency.  Since his touted Japan short has not paid off why is he not giving us a prediction when that play of a lifetime is going to hit?

He said this - "which he said would now focus on labor over capital, and the resulting increase in capital investment could to a jump in productivity, all of which is happening near full employment and when combined with tax repatriation, will be "extremely stimulative" but also be inflationary"

Now I'm confused, how is he claiming we are at "near full employment".  We have been pumping massive amounts into the currency flow with no production, now he says there will be capital investment and productivity.  Under the unnatural circumstances of the past years I do not see a increase in inflation but I lack good background here.

He says the German bunds have had low or negative rates and now there will be inflation which should increase the bund rate (have I missed on that?)..  The author indicates Bass is saying the play is in shorting bunds - maybe he got it wrong and Bass is saying the play is getting "in" bunds. 

Bass said Trump was a clown and Hillary was the only sane choice.  Now suddenly he says Trump is going to stimulate capital investment and employment with the very policies Bass previously said made Trump a clown.

Bass is smart, but is not to be trusted and one should not assume he is above intentional deception.

25% profit last year is very good if accurate, so what was is for each of the previous 4 years?

BeanusCountus's picture

Not sure about how nickels worked out, dismissed the suggestion on storage space concerns. Basement was already full. Labor thing might be right, but slack in jobs paying sustaining wages indicates otherwise. Anyway, his case for Japan collapse was stronger than China's current problems as laid out. I get it that rest of world sitch can influence individual country projections to negate the negatives in the short run. Still shouldn't overcome the inevitable in long run. Curious... what is he saying about Japan today? Anyone know?

And one more thing. If he's right, doesn't gold fall big time? I didn't hear him telling Texas to sell all of their holdings he recommended. Just sayin.

wisehiney's picture

These fuckers always trot out with their free advice when they are talking their book.

You can bet they want suckers to sell them their long bonds while they are cheap.

You get what you pay for.

Watch and learn.

DavyRoySixPack's picture

Open mouth Bass .... thats a Big Fish - lookout out little Chinese worms ....

Ajitaro6's picture

How would a crash in German bunds impact Deutsche Bank?

Big Brother's picture

I unfortunately did not have the wherewithall to recognize the irrationality in the market the moment that a Trump presidency was a likely outcome. 


As for shorting the German Bund,

  • Buy long-dated out of the money puts.

So sayeth an initial enquiry.


The_Passenger's picture

A Crash of China is hugely deflationary, isn't it? Also what if redonomination risk for France and Italy start to spike yields there? On the other hand, Bunds in Deutsche Mark are potentially priced fairely cheap in EUR terms right now... Short OATs and BTPs seem like a better trade to me? 

Seasmoke's picture

How about Gold, Bass ????

Consuelo's picture



So glad you brought that up...


In a word: Crickets...

Gold has no station in the world Kyle Bass inhabits.   That is, until it does anyway.  

And China is perfectly fine with that aspect of their economic/FX/currency arsenal being kept under the (mainstream) radar until such time as they decide to 'deploy' it.