Kyle Bass Warns "All Hell Is About To Break Loose" In China

Tyler Durden's picture

China's credit system expanded "too recklessly and too quickly," and "it's beginning to unravel," warns Hayman Capital's Kyle Bass.

Crucially, Bass notes that ballooning assets in Chinese wealth management products are another sign of a looming credit crisis in the nation.

"Some of the longer-term assets aren't doing very well," Bass said on Bloomberg TV from the annual Milken Institute Global Conference in Beverly Hills, California. "As soon as liabilities have problems - meaning the depositors decide to not roll their holdings - all hell breaks loose."

The wealth management products, or WMPs, have swelled to $4 trillion in assets in the last few years, he said., on a $34 trillion banking system...

"think about this - in the US, our asset-liability mismatch at the peak of our subprime greatness was around 2%! ... China's mismatch is more than 10% of the system."

Must Watch simplification of the next stage of the credit cycle in China...

Timing the drop is hard, Bass notes, reminding Bloomberg's Erik Schatzker that "in the US, the first bumps in the road hit in early 2007, and we didn't start to really accelerate until mid 2008... even a large unraveling takes a while."

Bass has been sounding the alarm for some time that debt-burdened Chinese banks need to be restructured...

"What you see when the liquidity dries up is people start going down... and this is the beginning of the Chinese credit crisis."

And judging by the collapse in both Chinese stocks and bonds, the deleveraging is accelerating...

 

And liquidity is getting desperate again...

 

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10mm's picture

Yo Kyle. What's up with the Nickels? 

D Nyle's picture

I see Bullit sales UP, body parts on sale

Lets Buy The Dip's picture

body parts must be booming. 

They have not turned their back on BITCOIN, and look at the SKYROCKETING, holy shit. 

 BITCOIN is making people rich in china, gamblers, blackmarket guys, money lauderers. Look at the chart here.... ==> http://www.bit.ly/1fMcakI  WHAO!!! Holy hell. 

I dunno who called it in here, but you rock, nailed it.  KONGI FAT CHOY! haha

garypaul's picture

WARNING: this is NOT Jason Geophardt's SentimentTrader but some kind of knock-off

espirit's picture

 

Meh… moo.

 

Who owns the moistest U.S. Treasuries again?

 

Get a grip on reality.

   

cheka's picture

still waiting on his japan collapse....

HooRAY4rSIDE's picture

Human sacrifice, dogs and cats in the same wok together... mass hysteria!

Kotzbomber747's picture

So watch the gold price implode.

China won't even have to start selling, but let's just imagine that they seriously will have to reduce buying...

Spoiler alert: Gold backed Yuan...? Gold prices to 10k per TRoZ? Errrrr, not any time soon folks, sorry. Keep on hoping for a Black Swan in some European election or in North Korea.

Kotzbomber747's picture

Update: and we have a 'winner:' Gold is at $1235,- as we speak.

BTFD, or DNCTFFK, Do Not Catch That Fucking Falling Knife?

Manthong's picture

Kyle is a pretty smart guy and I would love to be an assistant armorer and guardian to tons of nickel for him….

but …

I thought I heard something about Japan going down a while back ago.

 

PrayingMantis's picture

 

... "I thought I heard something about Japan going down a while back ago."

 

... Kyle is known to be OUTOFSYNC from time to time ... (while purportedly, Lance was NSYNC ;)


Haus-Targaryen's picture

The concepts of "possession" and "counter-party risk" are completely lost on you. 

Spigot's picture

I'm giving you an up vote here for your succinct points.

But you have to work on your Fight Club (TM) style. Not enough abuse or vulgarity. Let's give a hand ...

You wrote:

"The concepts of "possession" and "counter-party risk" are completely lost on you."

Suggested re-write:

"I take it the only concepts about "possession" and "counter-party risk" you get have to do with the narc raid on your 'blow and hooker' party last week. I'm sure the evidence photo of you giving a blow job to that STD infected tranny will be a boost to you social status."

Killtruck's picture

*Raucous Applause*

Bravo, sir! Bra-VO! Upvotes and blowies for everyone!

Kotzbomber747's picture

"The concepts of "possession" and "counter-party risk" are completely lost on you."

Nope, but why pay more?

What's best; naively BTFD and thinking 'the-world-might-end-any-moment,' or keep your cool and wait until the knife has finished dropping?

Paul Kersey's picture

"think about this - in the US, our asset-liability mismatch at the peak of our subprime greatness was around 2%!"

BASS pulled that 2% figure out of his ASS. US banks still have approximately a 14% correction mismatch on hundreds of trillions of dollars worth of derivatives. On a more concrete basis, just eight US families have more assets than 155 million of their fellow Americans. $32 trillion in US assets been extracted and are being held in offshore accounts, while what's left in the US is a growing $20 trillion debt. Meanwhile, the Fed is fueling a major asset-liability mismatch bubble in US real estate, by flooding the world with unknown quantities of dollars created out of thin air. 2% my ASS, BASS.

Consuelo's picture
Bass is pulling those numbers indeed, but this guy is 'all-in' on the China Doom & Gloom™ 'Stronger together since 2008' meme, so he can't back down an inch.  
NEOSERF's picture

Because those left financially standing after the Depression will be feudal lords, not just robber barons.

Justin Case's picture

All that QE created was looking fo a home to give a return. Too much QE and not enought assets to absorb the liquidity. This has created many asset bubbles in the economy. Everything is distorted. The FED wants to purge it's balance sheet to the banks, which means liquidity tightening. The FED wants to normalize a bit by raising rates, but I think the combination will cause asset bubbles to start popping and the economy will slide into recession, then the FED will open the monetary spigots again by lowering rates followed by inflation.

I really don't see a viable exit plan for this conundrum.

divingengineer's picture

So you speak of gold in terms of crash or moonshot only, it could also remain stable, you know.

EmmittFitzhume's picture

Hahahhahaahaaaa.  But seriously "credit"?  You mean those digits floating around on computers in cyberspace?  Credit????

bustdrs's picture

Bullish......Alt-P.....as usual

Quantum Bunk's picture

What's bad for china is bad for the USD

JLee2027's picture

Buying Treasuries from China is just an accounting entry. 

konputa's picture

"Who owns the moistest U.S. Treasuries again?"

 

US taxpayers, by a long shot.

Quantum Bunk's picture

Not true. Total BS. The Fed is not a US tax payer

konputa's picture

Try again, the Fed isn't the primary holder of USTs.

ATM's picture

The Federal Reserve Bank is the single largest holder of US debt by a factor of 2.2.

That would fit the definition of "primary".

 

konputa's picture

Yeah, no.The SS Trust Fund is the #1 holder of USTs.

Hence the taxpayers statement.

land_of_the_few's picture

But the big question is, are they medicated?

Kayman's picture

"Who owns the moistest U.S. Treasuries again?"

The "mostest" is the Fed. The "moistest", well......

RSDallas's picture

Why do the idiots always respond first?

NoDebt's picture

Responding first requires no thought.  Anyway, what's on your mind?

 

 

Bay of Pigs's picture

I'm wondering if they sell their UST's, tell the world how much gold they really have, and then peg their currency to it instead of propping up King Doelarr?

political_proxy's picture

Perhaps they play the US game for sustaining a laughable economic system: war. DPRK is in the batter's box already.

cheka's picture

china treasury holdings are a drop in the bucket.  frbny buy all that without putting their bagels down

WallHoo's picture

Why the fuck would anyone want to peg their national curency with gold?Even if someone wants to do it,why China??They are the last people(country) on earth to do something like that...

giovanni_f's picture

not yet and not voluntarily.

Once a new monetary system will be devised - and the necessity to do that at some point follows from 1s grade math and is denied only by accomplished morons like the ph.d. economists infesting the monetary temples of the modern world - gold will in all likelihood play a major role albeit not in form as a official gold standard. I don't think it will even make big news that gold is part of a new monetary system.

As to wether the inclusion of gold into the monetary system (which it is even now albeit unofficially) means that the holders of gold and silver eagles will become rich beyond their wildest dreams is open to debate, though. When it comes to miing - what is clear, however, is that the likes of Sprott and Rule will have made their billions with behind-the-scenes-mining-deals _before_ you even know about the name that is then presented as the new potential 10-100-bagger in the mining news letter industry.

By this, I do not mean that Sprott and Rule are fraudsters - I think they are not - but it takes more to make money than just following King-world-news and hoping the big kahuna will make you rich.

WallHoo's picture

I'm sorry but what you say sounds like bullshit...Its true economics as a "science" is no better than a woman studies degree.It is also true that mathematically any economy with positive interest rate will either have to devalue(inflate),cancel the debts or let them mess short out itself through bankruptcies(the austrian way).Gold takes out the first option and adds some...responsibility to the system??

 

Eitherway gold(as money not as an asset) has the same susceptibility that "fiat" money have when it comes to credit cycles.So the same boom bust story will happen no matter what,the difference is that the hard gold will make the fall harder,just like in the eurozone and particulary Greece.

 

If you want to see the future of a balanced budget in the middle of a crisis,while all debt has matured,private sector trying to salvage everything and the state trying to create budget surpluses look at Greece.If you like what you see then go ahead.

giovanni_f's picture

Funny fellow, has gold ever been "busted"? Last time I checked it was still around with a price > 1200 USD

WallHoo's picture

Well it used to be 1900$(and 200$),what about the people who bought at that price?We are talking about money not assets...If you want to back your currency with an asset,go ahead...

 

Interest will still be there,you cant save youreself from usury no matter what you put behind your money...

TheReplacement's picture

How do you define a positive interest rate? Just a number like +1%? How about compared to real economic growth or inflation?

What I'm trying to ask is, if I borrow $50 equivalent of gold at +1% and invest it into an enterprise that returns +2% then does that not mean there is no need to devalue or cancel? Does that also make it feasible that someone else could have taken the same bet and failed to repay and the whole thing is a wash between us?

Regardless, usury is a sin and a big part of the problem after fiat. At least with something like gold you cannot have some schlomo in the basement printing his wealth at the expense of everyone else and then watch him charge them all processing fees and interest too.

WallHoo's picture

Your logic is correct,but why restrict yourself with gold?

And as you noted,theres a differnce between investing and usury.

Another thing is that without interest(mutual) or negative interest there would be no need for the gorvement to print any new money(in theory),either way a debt free currency NOT FOR WELFARE but for investments coupled with a national policy that aims in production and a fair trade could be highly beneficial.

Right now noone can claim that the gov actually prints money,there is the debt after all,apart of course for bank reserves that change in quality through central bank "easing"...

paperstreetsoapco's picture

Where were the boom bust cycles when gold and silver were convertible to certificate treasury dollars when the people were allowed to convert?

WallHoo's picture

Wait wait wait,do you actually claim that gold nullifies the boom bust cycle??For real?And also where were they?I dont know ask the fed and all the previous central banks...

Boom bust is nothing but credit expansion and maturity,you will have that eitherway.

 

If you or somebody else wants to cover your wealth with assets such as gold,then go ahead,why not?But gold wont save the economy...

ATM's picture

Sell their UST's to who? The only oplace they will have any value will be in the US and that money will need to stay here to buy real assets.

That will be when the inflation that everyone predicts occurs in dollar terms. We are currently exporting our inflation but it will eventually come rushing back. When, who knows? I only know that it will and that's good enough for me.

Kayman's picture

The Chicoms are not going to peg to gold. Never. Nobody is going to lose the power of fiat.

 

2_legs_bahhhhhd's picture

They are bussed in from rent-a-troll