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Did Kyle Bass Turn Bullish On Housing, And Does It Mean Substantial Upside For Mortgage Insurers?

Tyler Durden's picture


For some actually relevant news, instead of market kneejerk reaction comments, we turn to the WSJ, whose Nick Timiraos points out an important inflection point, namely that Kyle Bass, one of the best hedge fund managers of his generations, may have turned moderately bullish on housing. To wit "A closely followed hedge fund manager known for correctly betting on the housing market’s collapse four years ago purchased a small stake in the nation’s largest mortgage insurance company in a bet that the housing market has neared bottom. J. Kyle Bass, portfolio manager at Dallas-based Hayman Capital Management LP, bought the 4.9% stake in MGIC Investment Corp, according to federal filings. He said on Monday the bet reflected his view that the housing market’s losses had largely been absorbed. “You can see that the pig has moved through the python in terms of U.S. housing losses,” he said. Shares of MGIC are about 10.2% higher in Monday afternoon trading, to $2.82." The Heyman Capital filing can be found here.

More from WSJ:

Unlike PMI, he said MGIC has a “pretty big positive equity position,” and he said its shares could rise above Monday’s opening price of $2.58 per share even if the firm is forced by regulators to stop writing new policies. “We think they’ll be one of … the last ones standing,” he said. “We’re in it for the long haul.”


Mr. Bass said his fund would have bought a bigger stake if doing so wouldn’t trigger a provision that would have limited a tax benefit for MGIC.


Fannie Mae and Freddie Mac require loans with less than 20% down payments to have some type of credit enhancement, typically mortgage insurance. When homes are sold through foreclosure, the insurer takes the first loss.

Keep in mind that unlike other amateur "hedge fund managers" who run a few million in family money and boast proudly about their holdings only to set the market rip against them and force them to sell and/or cover as soon as their sell stops are hit, Kyle Bass is a wily one, and we wouldn't put it past him to actually think two or three moves past the 13G clone sheep brigade. That said, we have previously noted our own personal appreciation of monolines, such as in this case MBIA, which stands poised to reap substantial windfalls as their litigation against Bank of America and other firms gather steams with each passing day, although granted the comparison is not a simple apples to apples. That said, we believe that if Kyle Bass is loading up on MGIC, he likely is also looking at MBIA, where it would be quite easy, as noted previously, to force a short squeeze due to the already discussed ratio of short interest to institutional ownership, where one major holder could easily force a massive short squeeze if so inclined following pulling of the borrow.

Lastly, there is also the explanation that just like John Paulson, Kyle Bass is simply mortal, and is simply betting on a housing recovery... a little early.


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Mon, 11/07/2011 - 16:42 | 1854561 devo
devo's picture

This guy is about 3 to 5 years early. There's at least another 25% drop.

Mon, 11/07/2011 - 16:48 | 1854592 bdc63
bdc63's picture

"Loses in the housing industry have largely been absorbed"

That the most ridiculous thing I've read all day, & given today's headlines, THAT's saying something

Devo is right -- 3 to 5 years till we see a bottom

Mon, 11/07/2011 - 16:53 | 1854614 Popo
Popo's picture

Betting on mortgage insurers is not the same as being bullish on housing anyway. The whole premise of this article Is based on a flawed understanding of Bass' call.

Mon, 11/07/2011 - 17:00 | 1854648 topcallingtroll
topcallingtroll's picture

I didnt see it that way.
First the mortgage defaults have to peak. Bass thinks that is behind us now. Then housing itself starts going up, whether thru qe or inflation or pure demand.

It may be years before we see an actual upturn in housing prices, but a lot of oldtimers who buy houses for rental income think now is a great time to buy in certain areas.

There are some amazing cash deals being made by those accustomed to haggling.

Mon, 11/07/2011 - 17:09 | 1854673 bdc63
bdc63's picture

As long as we continue to hear that people have stopped making mortgage payments and have been living in their houses for free for a year or two because the banks don't want to add to their foreclosed inventory, then mortgage defaults have not "peaked".

Mon, 11/07/2011 - 17:19 | 1854721 Pladizow
Pladizow's picture

Every time Bass speaks, I attentively listen - but something seems off here?????

What happens to ARM's in a high unemployment environment, when rates inevitably start to rise?

Mon, 11/07/2011 - 17:28 | 1854754 Troll Magnet
Troll Magnet's picture

+1 to TopCallingTroll.

I'm personally looking to invest in a commercial property right now.  I'm not sure if housing market will recover but there are some really good deals on rental properties. 

Tue, 11/08/2011 - 01:17 | 1855624 LowProfile
LowProfile's picture

Bass was ~3 years early on the housing bubble bursting.


Mon, 11/07/2011 - 18:52 | 1854988 Ropingdown
Ropingdown's picture

Bass is shrewd enough to see the benefits that may flow to the insurers both from litigation and, more valuably, from the government-subsidized refinancings of insured loans which may well (given current DC talk) involve principal reductions of some amount.  If these later occur it will be very good for MGIC.

Mon, 11/07/2011 - 17:37 | 1854729 TruthInSunshine
TruthInSunshine's picture

First, and significantly, Kyle Bass's actions are being very possibly grossly misinterpreted; is he really betting that the housing market has hit bottom, or is he really just expecting a wave of refinancings? A whole lot can be said about what "housing market losses have been mainly absorbed" (by whom? The government? The banks? The taxpayers or GSEs? How?) really means, from what specific and technical take that statement is being made, etc.

On to the broader picture...

There is an estimated 18 million vacant residential dwellings in the U.S., NOT including homes occupied by people not paying their mortgages or delinquent in paying their mortgages.

18.4 Million Vacant Homes in the U.S.A.

There will be an estimated 1.9 to 2.1 million homes foreclosed on for FY 2011, and an increase of about 20% in foreclosures in 2013.

Even if one assumed that 25% of the 18 million vacant homes referenced above, not including pending foreclosures or future foreclosures, are not habitable, that still leaves about 13.5 million vacant residential dwellings.

Hell, assume that there's a fudge factor of 30% in the 18 million vacant home estimate, and by the time you do the 25% reduction, you're still around 10 million vacant, habitable homes, not including FY 2011 foreclosures or those that will surge in 2012.

What about 2013, 2014, etc?

Are the job market and unemployement/underemployment rates really improving? Are real wages rising or falling, on average? What's happening with the cost of living?

Why are property values STILL falling?


It's all about jobs and wages and purchasing power (in that order).

Anyone, whether Kyle Bass or whomever, that sticks their hands out now trying catch a falling knife of the housing market is going to get cut.

When the unemployment rate/underemployment rate goes down because there's real net job creation again, and when wages and benefits rise (or at least keep pace with the pace of REAL inflation - and not the BLS' BS measurement), then there will be a rational thesis that can be made that the housing market is going to turn the corner.

Until then, anyone making such bets is buying a scratch lottery ticket.


Mon, 11/07/2011 - 17:56 | 1854819 Killer the Buzzard
Killer the Buzzard's picture


I completely agree with you analysis of the resi real estate market above, however bear in mind that MGIC effectively stopped wrapping RMBS deals back in 2007.  The securitizations they insured contained mortgages which are 4 years along their "loss seasoning" curve in other words, and have already taken a large bulk of the impairments which they're ever likely to experience.

Having said all that, MGIC had (has) a pretty robust business of insuring muni debt.  That business hasn't hit the fan in earnest yet. 

I respect Bass, but I'm puzzed that he considers an investment in MGIC the best use of his capital.

Mon, 11/07/2011 - 18:16 | 1854836 sqz
sqz's picture


Making a bet on one robust outlier mortage insurer is not the same as a bet on housing.

Anyone who thinks that

1. the consumer spending on housing from 2000 to 2007 was in anyway historically normal

2. that we are likely to see a return to those levels

3. that we will get there without either real job creation, increase in household income or mortgage debt writedown

is living in cloud cuckoo land.

Of course, there's always the nuclear option: remove the debt ceiling and let fiscal policy, helped by the TBTF liquidity goblins, blow pretty asset bubbles all over again for the umpteenth time. But that's why on ZH we prepare ...

Mon, 11/07/2011 - 19:26 | 1855052 Jay Gould Esq.
Jay Gould Esq.'s picture

Kyle Bass.

Same chap who bought a pallet of rolled nickels, right ?

Enough said.

Mon, 11/07/2011 - 23:29 | 1855446 palmereldritch
palmereldritch's picture

Kyle should probably be more concerned that with that particular market, he's facing a potential false bottom and that perhaps a whole different sub-basement awaits...

Mon, 11/07/2011 - 18:49 | 1854959 piceridu
piceridu's picture


There are only 3 impetuses for housing in the USA:



              1. Employment...Employent? Get real, rising wages are nonexistent and there's high unemployment - fail

           2. Expanding and available easy credit...expanding credit? Try and go out and get a re-fi or a new home loan - fail

           3. A real secondary mortgage market...secondary market? The government is virtually the only game in town...there's bankrupt Fannie and Freddie & FHA - fail

 You need all 3 to create any significant dent in the souring housing market.

0 for 3 = no rebound for housing...simply look at the facts


Mon, 11/07/2011 - 23:34 | 1855454 pavman
pavman's picture

Why are property values STILL falling?

Because the rent is still too dam high!  Oh wait, I meant to say because the prices are still too dam high!  Actually, if you add in property tax, association fees, move-in tax, and PMI, its not worth owning unless uber-duber inflation is right around the corner (which would be hard to believe considering the Euro crisis and the calm in the center of the storm we find ourselves in atm).  If Benny and the Jets turn on full steam, then it might be worth it; however, I prefer portable wealth myself in situations where we re-live history and invite totalitarian crackpots into our world.

Too many places are still WAY over-priced.  Once you factor in the things mentioned above, you have got to get a helluva-lot lower to make it worth switching from renting to buying.  Unless its an investment property with immediate cashflow, then it might be worth it. 

Its true though, in rural areas housing is a steal right now.  I heard about property in decently populated areas of Nebraska going for unbelievable prices.  But in more urban and suburban areas, I'm not seeing price deflation on par with my expectations.  And that is where I would buy.  Slowly I'm seeing better deals than a year or two ago, but those are oddball properties that are either not sellable in the future, or need a ton of work.

Seeing as the Boomers (who can't seem to go out without destroying the economy, those selfish pigs) are about to retire enmass, I don't really see how the housing situation can turn around until that all plays out...2020, maybe 2022 when the Gen Y people are old enough to start buying shit (or is that the Gen Z children coming of age right now?!).

Anyway, negative population = bad for housing (and may even = bad for economy).  And we're going to be entering that territory unless we start importing more folks.  Plus, if this is playing out historically, we're just in the inflation caused deflationary death spiral, and its just the warm-up before the real pain.

Mon, 11/07/2011 - 22:09 | 1855314 DarkestPhoenix
DarkestPhoenix's picture

I'm not an old-timer (only 33)....but I have picked up four foreclosures on the super-cheap with cash, and every single one of them is giving me almost a 20% yearly return just with rents.  However, even I stopped buying, because I think in time, we'll see this price drop even lower, so for now, I'm focused on building the PM portfolio.  I will not be satisfied until I can buy a property just by dumping some silver on the table.  First foreclosure I bought was a two-bedroom for $20,000 cash, put just under $11,000 into it to fix it up and I'm renting it out for $575 a month, and could probably get $600, if I were greedy.  I live in Iowa, and even though we weren't "hit" that terribly by the crisis, our prices were pretty low to begin with.  Some of these places are just unbelievable bargains, though....hard to resist and just throw all your money into gold and silver, but....on the other hand, it's shiny.

Mon, 11/07/2011 - 17:15 | 1854711 sunnydays
sunnydays's picture

Correct we are not close to the bottom.  Look at the huge increase of foreclosure filings the last few months.  There is more hidden house inventory than anyone even knows.  

Mon, 11/07/2011 - 18:01 | 1854841 narnia
narnia's picture

international flows are a wild card.  if the $ gets cheap enough, and international buyers don't fear issues with property ownership rights, this sector could get active on the investment front.  

prices have to come down DRAMATICALLY before organic demand fuels this.

Mon, 11/07/2011 - 16:48 | 1854595 ArkansasAngie
ArkansasAngie's picture

Insovency vs. Liquidity.

When you buy based upon price appreciation and not economic value ... well ... price discovery has not run its course.  Too much extend and pretend for that.

He's betting on Benny's printing press making all those negatives go green

I hope he is(n't) holding his breath.

Mon, 11/07/2011 - 17:04 | 1854665 topcallingtroll
topcallingtroll's picture

Hey babe,

Isnt he just thinking that delinquencies have peaked?
Are there good deals available in your perennially over priced area?

Mon, 11/07/2011 - 22:05 | 1855308 ArkansasAngie
ArkansasAngie's picture

I don't think they have peaked.

Banks are still extending and pretending.

I've bought some nice foreclosures

Right now I'm looking into purchasing notes on properties for pennies on the dollar

Mon, 11/07/2011 - 16:50 | 1854598 WestVillageIdiot
WestVillageIdiot's picture

That is on top of the 30 - 50 percent drop that many areas have seen.  The negative wealth effect makes housing even more unstable, on top of a slew of other reasons.  I am finally hearing people talk about how real estate might not be the surest path to riches.  When I hear the great mass of proles repeat this line of reasoning then I will know housing is a good deal.  Plenty of potholes ahead and that road to Appreciation. 

Mon, 11/07/2011 - 17:10 | 1854687 devo
devo's picture

What appreciation? The average home is a depreciating asset. The best you can hope for is it keeps up with inflation, which means a break even. The fed and realtors expect a return to the bubble them that means housing has "corrected"

Mon, 11/07/2011 - 17:39 | 1854780 riphowardkatz
riphowardkatz's picture

DEVOid your argument is very compelling. Housing wont go up because I say so. OK you win. Ignore the fact rents are higher than 30 year in lots of places, foreclosures are predominantly in new crappy developments not established hoods, housing very cheap in gold terms, 3x money supply, mortgage is a dollar short, tons of incentive to create another housing bubble which can be done with ease (push rates to 1-2% they are working on this should be done by spring of next year, very few places to store wealth besides precious metals and only place to store wealth that has opportunity for income and or pracitical use. 





Mon, 11/07/2011 - 18:02 | 1854837 devo
devo's picture

It sounds like you own a home. See, I don't, and I can buy one in cash, so I don't have any bias.

Housing is actually expensive in gold terms. So are stocks. In terms of gold, the Dow should be at 8,700.

I didn't say housing is a terrible investment. I just think it will go 25% lower. If you can buy outright (at 20% off list) and rent it out, it's probably an okay investment in this environment. I would worry about stagflation and depreciating rents, though.

Mon, 11/07/2011 - 17:48 | 1854788 T1000
T1000's picture

Great points, Devo.

I can see the value in real estate, but it won't be for the homes, it will be for the land under the homes, where they'll bulldoze and scrape these worthless homes off the land to grow something with real value, food. 

Homes are luxury items, and broke, jobless, and former members of the middle class aren't getting back in da club For a loooooong time.

Tent houses, bitches!



Tue, 11/08/2011 - 03:27 | 1855714 Temporalist
Temporalist's picture

Motor homes are cheap.  Buy a plot of land, drop a trailer park on it, VOILA, private community...exclusive to anyone who can pay.

Mon, 11/07/2011 - 16:51 | 1854606 ghostfaceinvestah
ghostfaceinvestah's picture

Even without a further drop, the underwater mortgages already out there will generate enough losses to swamp the remaining mortgage insurers.

Mon, 11/07/2011 - 18:24 | 1854908 ATM
ATM's picture

Or perhaps the mortgage insurers will get bailed out because the banks can't take the losses and we know the investors aren't going to take the losses either because they're union pension funds.

Mon, 11/07/2011 - 18:49 | 1854975 ghostfaceinvestah
ghostfaceinvestah's picture

The counterparties with the biggest exposure to the mortgage insurers are fannie and freddie.  The failure of PMI and the regulators decision to only pay 50 cents of every claim dollar was a direct contributor to Freddie's recent $6B loss.

And of course that $6B loss is funded by the taxpayer.

That is the only bailout the mortgage insurers will get - taxpayers will cover their claims when they can't.

There will be nothing for the stupid equity investors like Kyle Bass.

Mon, 11/07/2011 - 16:55 | 1854622 Larry Darrell
Larry Darrell's picture

I don't necessarily disagree;  however......

Charting housing against gold, real estate is at a multi-decade low.

Maybe he is easing his way in due to looking at the picture when not priced in nominal dollar terms?

As the article says, it's not like he's placing a large bet at this time.


Mon, 11/07/2011 - 16:56 | 1854628 SRSrocco
SRSrocco's picture're exactly right.  There's at least another 25-50% decline in home values to come.  If we consider the falling EROI (energy returned on invested) and the Land Export Model that shows exports of oil will decline drastically over the next decade... the Suburban Retail Leech and Spend Economy will not be viable at this time. 

Furthermore, a great deal of real estate will be disfuctional due to the fact energy will become both scare and expensive rendering the suburban economy...NULL and VOID a few years in the future.

I do not mean to be so pessimistic...but thats what the facts say.  Best to be out of the big cities when the Cow Excrement hits the Wind Turbine.

Mon, 11/07/2011 - 17:13 | 1854680 GeneMarchbanks
GeneMarchbanks's picture

Furthermore, a great deal of real estate will be disfuctional due to the fact energy will become both scare and expensive rendering the suburban economy...NULL and VOID a few years in the future.

Your premise makes me believe you're a peak oiler, which is fine but the next move in oil could take us to $200 and the US would still have cheaper petrol than... say GB or all of the EU area. Drive on 'Merikans... you have no choice anyway unless you're in Frisco etc.

It'll only mean a few more rubber bullets @OWS...


Mon, 11/07/2011 - 17:14 | 1854707 chubbar
chubbar's picture

I'm not of the opinion that RE will do well, I think it continues to decline as do you.

That being said, don't forget there is a fair amount of spent energy existing in the houses that are already built. Should energy inputs take off in cost, existing homes offer sanctuary to some degree.

BTW, if the suburbs are "null and void" and it is "best to be out of the big cities", what do you suggest for the population?

Mon, 11/07/2011 - 17:23 | 1854732 GeneMarchbanks
GeneMarchbanks's picture

Well... I can't speak for him but surely you can imagine the alternative: rural farming type land with an agrarian bend, think Jefferson's utopia.

Mon, 11/07/2011 - 18:30 | 1854923 chubbar
chubbar's picture

Well, I guess I assumed you realized I was speaking about all the folks currently in both the suburbs and/or the cities. I live close to a small town and own cattle, chickens and a greenhouse on 40 acres, essentially I "got it" back in 03 when I went almost all in on PMs and started searching for my "homestead", which is why I'm here. Been building this land out since 09, when I bought it from a BK developer.

I was mainly talking about what he thought about that advice for the populace at large and where he thought the majority of folks were going to be heading when both the suburbs and cities went tits up? Rural isn't rural when 1 million folks from your closest population centers start blowing through town. Regardless, rural areas can't sustain a rapid poplation influx because of lack of infrastructure, not that I'm telling you something you don't already know. My point is that what works for a handful of ZHers doesn't work when applied to the population at large. This is what I was addressing with my question.

Tue, 11/08/2011 - 06:29 | 1855808 SRSrocco
SRSrocco's picture

chubbar....sorry to not have responded sooner.   I would like to start by stating I am not a cheerleader or a happy advocate of the End of Suburbia (line coined by James Howard Kunstler).  There will be a great deal of upheaval and suffering as the suburban economy disintegrates.  We have plenty of smart people walking around the country that could design systems to transition us to something more local... but these folks aren't calling the shots.  Instead we have inept politicians and a leveraged based financial mindset that is in control.

The Suburban Economy was designed and built on cheap and abundant oil.  This was somewhat the same parallel as the 19th century Whaling Industry.  Because there were an abundant number of whales in the ocean, it allowed the growth of the whaling fleets and industry.  When we hit PEAK WHALES....we hit PEAK WHALING SHIPS and the equipment used in the manufacture of whale oil.

Now that we are hitting a Peak in Global Oil Production the situation becomes even more dire when we consider the falling EROI (energy returned on invested) of oil and gas as well as the negative ramifications of the Land Export Model.  I wrote about these in my PEAK SILVER REVISITED article that was posted here a few weeks ago.

I am currently writing another article that details all the aspects with plenty of charts and graphs.  But to answer your question about WHERE DO THE PEOPLE IN THE SUBURBS GO?  That is a tough nut to answer.  The big city is by far the worse choice due to the problems of logistics in keeping food and goods moving in when the US Empire moves from STAGE 1 of collapse to STAGE 2.  Stage 2 is the commercial collapse where we see shortages of goods, hyperinflation and hoarding of food and etc.

STAGE 1 has taken place already in 2008.  Stage 1 was the financial collapse.  Even though Banks are still open and bank accounts are still guaranteed by the FDIC...its all smoke and mirrors.  The public will find this out when the Bank Holidays are announced and Wal Marts are wiped clean within 4-8 hours.

As the system disintegrates, the best place to weather the storm is in the country or in small towns or cities  next to farming-ranching communities.  These areas will suffer the least amount of pain and anguish.

The ramifications of peak oil, the falling EROI and exponentially declining exports described by the Land Export Model will change the way of life here in the states more than most have forecasted or remotely considered.  This is something I am not happy about...but rather a pragmatic diagnosis of the system itself.




Mon, 11/07/2011 - 17:15 | 1854715 riphowardkatz
riphowardkatz's picture

at least 25-50% are you sure it isnt 75-90% more. Haahahahahaha. Cheapest it almost ever has been in gold terms, very few other places to store wealth, foreign visas coming for homeownership, 1-2% rates coming, rents exceeding 30 year mortgage rates in many areas, cash buyers galore, huge percentage of people that own outright(a floor from the unleveraged) 3 times the amount of money supply. And the number one reason housing is going up is that every person here and everywhere else is saying it wont. Copper the public.

Mon, 11/07/2011 - 17:08 | 1854670 Long-John-Silver
Long-John-Silver's picture

The housing industry has changed radically. Most pundits (including the author of this article) do not understand this. People can no longer count on having a job close to a home they own. They must be mobile now. This means renting, not buying a home. This is going to drive housing prices down further than anyone can imagine.

Mon, 11/07/2011 - 17:19 | 1854713 devo
devo's picture

This is a great point. I've actually considered investing in RV companies this past year. They've taken a beating because they are considered luxury/vacation vehicles this point, but they could quickly become the average American's primary residence...

Mon, 11/07/2011 - 17:23 | 1854743 Pladizow
Pladizow's picture

Alt Inv: Mobile Home Parks.

Mon, 11/07/2011 - 17:33 | 1854770 Long-John-Silver
Long-John-Silver's picture

They are taxed as such as well. They can not be considered a primary residence under current law. I foresee Shipping Containers becoming the modern Mobile Home. They can be picked up and moved easily by Truck and Train. They are easily converted into housing as well.

Mon, 11/07/2011 - 18:08 | 1854809 T1000
T1000's picture

Maybe these ex-homeowners can get a big break and pickup one of those discount shipping containers from Japan. Comes with its own indoor lighting. Glowing reviews. 

Mon, 11/07/2011 - 19:28 | 1855055 tamboo
tamboo's picture

just blend in anywhere with a dumpster house.

you may want to chain it down to avoid the inevitable.

Berkeley man makes a (really rather nice) dumpster home
Mon, 11/07/2011 - 17:54 | 1854807 moneymutt
moneymutt's picture

Long John, totally agree. The stink of being trapped in an underwater house, having to be foreclosed on, lose credit worthiness etc will deter youngins from flocking towards housing. The typical churn of American families chasing jobs or being moved by company was covered by the appreciation of the house, but now when appreciation is a pipe dream, who wants to buy a house when they know they might need to move in a few years. Appreciation is no longer an incentive, being underwater is a valid fear, and the cost of buying an selling would make a lot of rent payments. Slowly but surely this is dawning on people and culture is shifting. If houses keep falling in price, even a little for five or ten years, it will be decades before attitudes change back to housing.

I have a friend the was with FBI in Chicago, and he wanted to move back to homeland adn extended family in MN but many people senior to him on the list wanted to do that also, so he thought he was stuck. But the next time a position in MN opened up, he got it, because everyone else on the list was underwater on their houses and didn't want to move while he had just been renting and got to live where he wanted.

There are so many condos for sale that are cheaper than rent, even with mortgage, prop tax and assoc fees counted in, but no one is buying. Cash buyers for rent can, but they worry about depreciation. ANd if you are going to rent, why not rent from a bigger facility and get lots of amenitities.

The big place for opportunity I think is convenient location small apts to make convenient location (read no car) affordable for lwoer wage people AND something I see no one doing, in MN, at least: rental facilities geared towards families with children. Yes they can rent a house, but how about multi-family in good school districts with gated parks with propety etc.

The final issue is used to be harder to qualify to rent than to buy, opposite is now true, so people with decent income cant qualifty to buy if they wanted.

Mon, 11/07/2011 - 17:08 | 1854675 jcaz
jcaz's picture

Yep-  interest rates will keep home prices pinned until REAL housing demand occurs-  never gonna see home prices rise in a rising interest rate market (which is now FOREVER) with current fat inventory, it's all about that monthly payment to the the guy paying the mortgage......

Bass is just nibbling.

Mon, 11/07/2011 - 17:21 | 1854735 PulauHantu29
PulauHantu29's picture

You are awfully opiutmistic devo. Here, from Dr Housing Bubble web site:

"But going back to the previous chart, you will notice in the mid-1990s home values completely disconnect from the inflation rate and this peaked out in 2006.  After this period home prices cratered and for the first time in many generations did we see national real estate values fall on a year over year basis.  The last time this happened was during the Great Depression.  But look what we now have.  You will see inflation is slightly ticking up but home prices are still anemic or going lower.  Why?  There are multiple reasons for this trend but first, wages have gone negative and the job market is still weak.  We are 7 million jobs in the hole since the recession started and wages reflect this pain.  The U.S. dollar is being devalued by the Fed so imported goods increase a bit in price, food certainly has gone up, and so have other items like the bubble in college and fuel.  Yet home values remain stagnant."

Mon, 11/07/2011 - 18:03 | 1854846 The Big Ching-aso
The Big Ching-aso's picture

Yep, I ain't buying this guy's BS.     Bass is welcome to be hooked, hook, line, and sinker.   That's his biz.  Not mine.

Mon, 11/07/2011 - 18:50 | 1854980 reading
reading's picture

I hope Kyle Bass doesn't join the legion of those who make a brilliant call only to follow it up with what proves what an idiot they actually are.


Mon, 11/07/2011 - 18:54 | 1854994 ghostfaceinvestah
ghostfaceinvestah's picture

Like Paulson?  Trading in PMI was halted 3 weeks ago at 31 cents after their regulator seized their operating companies.

SAN FRANCISCO (MarketWatch) -- PMI Group Inc. shares jumped more than 10% Tuesday after hedge fund firm Paulson & Co. disclosed a stake in the mortgage insurer. In a regulatory filing late Monday, Paulson said it held 5 million shares of PMI at the end of June. The firm held no PMI stock at the end of March. PMI shares climbed 13.5% to $2.95 in morning action Tuesday.

Mon, 11/07/2011 - 21:49 | 1855289 Freddie
Freddie's picture

Kyle Bass has an Uncontrollable Urge.

Mon, 11/07/2011 - 16:43 | 1854563 FlimFlam
FlimFlam's picture

Or perhaps betting on MBS money printing, yes?  Quotation marks around betting.

Mon, 11/07/2011 - 16:43 | 1854565 Ray745
Ray745's picture

It's not so much a bullish bet on housing, just on MGIC specifically, he states in the article that if they were to never write another policy the stock would be worth at least what it is now.  Without having done any work on MGIC at all, I would trust Bass's assessment given his attention to detail in the past.

Mon, 11/07/2011 - 17:03 | 1854662 s2man
s2man's picture

Yep, he didn't say housing will recover, as others are claiming here.  He said the worst of the defaults are over and MGIC looks solid.  End of story.

"the pig has passed through the python".  That's great.  I'm gonna use that one.

Mon, 11/07/2011 - 17:49 | 1854797 Logans_Run
Logans_Run's picture

What he didn't say is that what he sees is a dead python with a half-digested pig inside.

Mon, 11/07/2011 - 18:29 | 1854920 ghostfaceinvestah
ghostfaceinvestah's picture

I can assure you Bass is wrong in this case.

For one thing, there is no guarantee that there will even be a mortgage insurance industry in 3-4 years.  That depends a lot of what happens to the GSEs.

As for his assertion that MTG is worth more than $2.5 a share in runoff, I wonder if he is counting the $600M+ that Freddie says MTG will owe them that MTG disputes?  Based on my conversations with folks who should know, MTG WILL owe that money, even if it takes a lawsuit to compell them to pay.  That alone wipes out nearly half of MTG's current capital base.

Based on information we received from MGIC, we understand that MGIC may challenge our future claims under certain of their pool insurance policies. We believe that our pool insurance policies with MGIC provide us with the right to obtain recoveries for losses up to the aggregate limit indicated in Table 29. However, MGIC’s interpretation of these policies would result in claims coverage approximately $0.6 billion lower than the coverage outstanding amount set forth in Table 29. We expect this difference to increase but not to exceed approximately $0.7 billion.

Mon, 11/07/2011 - 16:46 | 1854566 GeneMarchbanks
GeneMarchbanks's picture

He's early but probably onto something or he sees substantial inflation tide that'll lift all boats including one of the hardest hit.

Mon, 11/07/2011 - 16:47 | 1854590 midgetrannyporn
midgetrannyporn's picture

Agreud. It's not altogether clear that MTG won't go the way of PMI.


Mon, 11/07/2011 - 16:57 | 1854633 ghostfaceinvestah
ghostfaceinvestah's picture

Both RDN and MTG will go the way of PMI, probably by this time next year, unless they somehow raise new capital.

Mon, 11/07/2011 - 17:03 | 1854651 GeneMarchbanks
GeneMarchbanks's picture

The more I read about it the more I think it's just a bet that TPTB have either i) put a floor under housing or is close to it and ii) More relief is on the way(more MBS absorption etc.) via Fed or other.

I can't imagine this is something he's banking on as a major part of his contrarian theme...

Mon, 11/07/2011 - 17:12 | 1854696 buzzsaw99
buzzsaw99's picture

It is the height of absurdity that the behemoth agencies required that high ltv loans be partially backed by a troubled small cap insurer.

Mon, 11/07/2011 - 18:52 | 1854985 ghostfaceinvestah
ghostfaceinvestah's picture

Troubled, money losing, and "B1" rated.

Yes, it is absurd the FHFA let's this stupid charade continue, as it will eventually be the taxpayers who pay for the inability of these guys to pay their claims.


Moody's Investors Service said it has downgraded the insurance financial strength rating of Mortgage Guaranty Insurance Corporation (MGIC) to B1, from Ba3, due to material deterioration in the insurer's regulatory capital position, large current and projected claims payments, and modest new business production.

Mon, 11/07/2011 - 16:43 | 1854567 transaccountin
transaccountin's picture

housing market recovering, oh that's a good one

Mon, 11/07/2011 - 16:51 | 1854600 bdc63
bdc63's picture

anybody have Kyle's number? ...  I have a bridge in New York that I think he might be interested in ...

Mon, 11/07/2011 - 16:52 | 1854608 WestVillageIdiot
WestVillageIdiot's picture

It is recovering.  It's just that it is recovering from a heart transplant, not a skinned knee. 

Mon, 11/07/2011 - 22:15 | 1855319 Freddie
Freddie's picture

How so? I saw something today that was typical Obam/elite news media BS about subprime and student loans taking off again.

I have seen examples of those who voted muslim in 2008 getting houses and loans.  Not cheap houses either.  $500,000 to 800,000 houses.  Some of them do not appear to be going to work either. New cars and toys as well.   

Mon, 11/07/2011 - 16:44 | 1854570 El Viejo
El Viejo's picture

Yeah, but China's is going the other way:


Mon, 11/07/2011 - 16:44 | 1854571 achmachat
achmachat's picture

I could have sworn real estate is still overvalued.
Then again, if QE starts again full throttle, today's prices might be spot on after all.

Mon, 11/07/2011 - 16:55 | 1854620 WestVillageIdiot
WestVillageIdiot's picture

QE is driving up the price of essentials such as gas, clothing, food, etc.  This will leave less, not more, income to be pumped into housing.

I was walking last week when a group of Wall Street wannabes walked by.  One of the jeniuses said assuredly, "real estate will do well in high inflation".  He was past me before I could mock him.  How did real estate do in Weimar?  How did real estate do in 1982?  Inflation brings higher interest rates, regardless of the omnipotence of The Fed.  Higher rates bring lower prices. 

Inflation will crush real estate even further, in my opinion. 

Mon, 11/07/2011 - 17:02 | 1854654 achmachat
achmachat's picture

I can follow your thinking. Bass might think that a larger monetary base will inflate the price of real estate along with commodities and everything real.
Personally I think that in case of hyperinflation, real estate could become dirt cheap... IF you "pay" for it with precious metals you procured before hyperinflation kicked in...

Mon, 11/07/2011 - 17:11 | 1854688 Missiondweller
Missiondweller's picture

Agreed. In my mind a mortgage is a bond. Higher interest rates mean lower values.

Mon, 11/07/2011 - 17:30 | 1854761 chunga
chunga's picture

The argument can be made that once it is securitized it turns into a stock.

Mon, 11/07/2011 - 22:41 | 1855349 TruthInSunshine
TruthInSunshine's picture

A couple of follow up points;

A mortgage is a shackle, and the secondary market for mortgages is all but dead and buried, with no demand to be resurrected absent express (not explicit, but express) government backstops.

Case in point:  86% of each and every home sold right now has a FHA or VA express backstop guaranteeing the loan. Why? Because if not, there'd be 86% less homes sold than are being sold now, even in this anemic market, since banks and other mortgagees would absolutely not undertake the risk of financing the note on what could be an asset that could very plunge another x% to xx% for who knows how many number of years, and top of that, in a weak employment market which could possibly get far weaker, which will only accelerate the decline in values.

All of this = "no government guarantee on the mortgage in the event of default, no deal," or "no tickey, no laundry."

Mon, 11/07/2011 - 22:27 | 1855328 Freddie
Freddie's picture

When did real estate go ape shit in California due in part to inflation? Late 1970s?   Actors were getting real estate licenses and Arnold got rich on real estate before he even had a movie.

I doubt you will see it anytime soon there.  Insane taxes, third world demographics, bankrupt state, employee unions sucking up every nickel, 10% sales tax in some places.

Mon, 11/07/2011 - 17:01 | 1854649 s2man
s2man's picture

It would cost $80k to replace my house (not including land and utilities), which appraised for $65k when I bought last year for $45k.  Less than on year's wages.  Sounded like a good deal to me.

Mon, 11/07/2011 - 16:46 | 1854573 orangedrinkandchips
orangedrinkandchips's picture

Why not buy Enron??? IT'S NOT HIS MONEY!!!


Ill buy ANYTHING with YOUR $$

Mon, 11/07/2011 - 16:55 | 1854626 WestVillageIdiot
WestVillageIdiot's picture

Robo Horseshoe loves Chipotle burritos. 

Mon, 11/07/2011 - 16:45 | 1854574 Number 156
Number 156's picture

Falling knifes.

Mon, 11/07/2011 - 16:57 | 1854629 WestVillageIdiot
WestVillageIdiot's picture

Confucius say, "man that catch knife never plays with self". 

Mon, 11/07/2011 - 16:46 | 1854576 Segestan
Segestan's picture

Bullish on housing? Why?..... when jobs pay crap , massive illegal labor pool, unemployment through the roof and industry in China?  Get real.... housing will never return to anything like the boom years, in fact housing will continue to decline. Panhandlers Just pushing their product... nonsense.

Mon, 11/07/2011 - 16:53 | 1854612 Mike2756
Mike2756's picture

Foreign buyers? lol.

Mon, 11/07/2011 - 16:46 | 1854578 CrashisOptimistic
CrashisOptimistic's picture

Hard to pay mortgage when gasoline is 30% higher than this time last year.

Mon, 11/07/2011 - 16:46 | 1854584 WestVillageIdiot
WestVillageIdiot's picture

The East Coast is still hugely overpriced.  People are maxed out on credit.  There are an army of people living in their houses for years without making payments.  None of that is being worked through the pipeline in a timely or efficient manner.  On top of that are government job cuts, demographic problems and falling wages.  The fear of losing a job is still one of the primary thoughts on the minds of a huge swath of the population. 

Against all of this you have housing rising?  I don't think so.  Squeezing some shorts out on a stock seems a lot simpler than somehow getting the price of overpriced housing to go up. 

Some areas of the country are probably closer to the bottom than the top.  But one economic shock and prices will continue that slide down the mud hill.  And then we will be Bass fishing. 

Mon, 11/07/2011 - 16:46 | 1854585 mariner22
mariner22's picture

Kyle Bass may be one (if not the smartest) hedge fund managers I have ever met, but he is mortal - his Japan bets (shorting the Yen/JCBs) has been a disaster. Ultimately, he very well may be right - but his fund may be vaporized long before then.

Mon, 11/07/2011 - 18:31 | 1854930 ghostfaceinvestah
ghostfaceinvestah's picture

Yeah, that's a good point, he keeps saying Japan is facing the Event Horizon, but yet JGBs and the yen keep grinding higher.

The thing you have to realize is some of these guys are just one-trick ponies.  Look at Paulson (who by the way also invested in the mortgage insurance sector only to see his favorite company go to zero).

Tue, 11/08/2011 - 00:07 | 1855512 Tin .Cup
Tin .Cup's picture

Being the smartest guy in the room doesn't keep you from being run over by stupid.  But, in the MTG trade, he is the stupid.

Mon, 11/07/2011 - 18:32 | 1854931 The Big Ching-aso
The Big Ching-aso's picture

I think Bass ate some bad bait and it has affected his brain.

Mon, 11/07/2011 - 22:20 | 1855324 disabledvet
disabledvet's picture

He's also up to his eyeballs in Greek CDS--which as we all now know will not be honored. At least according to Michael Lewis' book "Boomerang." It appears he's "boomer-wronged" on this one.

Mon, 11/07/2011 - 16:46 | 1854586 Archimedes
Archimedes's picture

I don't care what Super star hedge fund manager says it, there is no way you can look at the housing situation in the US and say it is at a bottom. And even if it is at a bottom it is going to stay there for a decade. Who the hell is going to buy the  4 million homes in forclosure? Add that to all the underwater mortgages, tight credit, 15 million unemployed or under employed and then add the 75 million baby boomers who will want to dump their homes over the next two decades and try to tell me we are at the end!

Housing still has another 20-25% to fall and eventually it will. The future is city living. Low maintenance, no vehicle to gas up, much more public transportation and efficiency.

Buying a home is so last century. Plus the youth hate the suburbs. They all run to the city the first chance they get. Unless they want to sit and do meth all day in the burbs. Barring the really high rent neighborhoods the suburbs will be the ghettos of the future.

Mon, 11/07/2011 - 17:15 | 1854708 Missiondweller
Missiondweller's picture

You hit the nail on the head. Baby boomers are downsizing especially now that their 401k's are now 201Ks and new houshold formation is shit.

That means we have a housing glut for a long time. Demographics.

Mon, 11/07/2011 - 22:35 | 1855342 Freddie
Freddie's picture

Yeah - cities are great as you get taxed to death to pay for the corrupt union govt employee elites aka your overlords.   It is called slavery for a reason.

Mon, 11/07/2011 - 16:47 | 1854588 LasVegasDave
LasVegasDave's picture

Even the greatest hitter of all time Ted Williams failed to reach base six times out of ten.

Mon, 11/07/2011 - 17:00 | 1854647 WestVillageIdiot
WestVillageIdiot's picture

Ty Cobb had the highest average of all time and even he managed to make an out in more than 63% of his official at-bats. 

Mon, 11/07/2011 - 16:48 | 1854589 slewie the pi-rat
slewie the pi-rat's picture

it was a very small pig...

and the python is still hungry...

Mon, 11/07/2011 - 17:04 | 1854663 WestVillageIdiot
WestVillageIdiot's picture

It is a very large python. 

Mon, 11/07/2011 - 17:11 | 1854689 WonderDawg
WonderDawg's picture

Cryptic, Slewie. Couldn't agree more.

Strike a match.

Mon, 11/07/2011 - 16:48 | 1854591 Corn1945
Corn1945's picture

This is the same guy that bought the nickels. What was he going to do with them? You can't melt them down.

Mon, 11/07/2011 - 16:53 | 1854616 Dr. Engali
Dr. Engali's picture

Once it costs more to produce a coin than it's face value, I'll buy them hand over fist.

Mon, 11/07/2011 - 17:09 | 1854641 RockyRacoon
RockyRacoon's picture

You are somewhat shortsighted and a tad ignorant of the history of coinage.  You can't melt them down now because they are legal tender and no replacement is in the pipeline at the Mint.   When the plastic, polymer, or whatever "nickels" are introduced they won't care what you do with the old, mostly copper, nickels.   As a matter of fact, they would like for you to take them out of circulation so that the "new nickels" are more readily accepted.   The U. S. Mint has gone thru this before and is taking the playbook of the Roman Empire on coinage debasement.   Yes, you should be stockpiling anything that costs more to produce than the face value.

Mon, 11/07/2011 - 18:09 | 1854870 slewie the pi-rat
slewie the pi-rat's picture

the 5-cent piece weighs 5 grams

and is 3/4 (.750) copper and 1/4 (.250) nickel

it seems weird, Rocky_R, but if they keep devaluing the dollar, maybe a nickel will be 'worth' a 'dollar' if the magic uber-elite reflation printing machine and dreaded demonic digital dildo gets a power surge at the wrong time, eh?


Tue, 11/08/2011 - 03:42 | 1855724 Temporalist
Temporalist's picture

You are right, go to Apmex and buy one of these 90% Silver Coins - $1,000 Face Value Bag and I will pay you the $1000 face value.  Since you can't melt them they must only be worth $1000 right?

Mon, 11/07/2011 - 16:48 | 1854594 chunga
chunga's picture

Bullish on housing? Kyle, you're kidding right?

The titles are so trashed, unless you buy the land then pay cash to build the house - you stand a good chance of getting sued.

Catch the Replay of Citizen Warriors Radio with George Babcock November 5th 2011

Mon, 11/07/2011 - 16:49 | 1854596 ghostfaceinvestah
ghostfaceinvestah's picture

Another knife catcher, short this pop in the MIs, trust me.  They are not going to make it.

Why does it matter if housing has hit a bottom?  All those underwater mortgages are going to default eventually.

Mon, 11/07/2011 - 16:51 | 1854605 Dr. Engali
Dr. Engali's picture

He's got that one wrong for sure. I can tell you the real estate agents around here are starving and it's getting worse. Every day it seems like more and more office space is going up for sale or lease too.

Mon, 11/07/2011 - 17:14 | 1854706 RockyRacoon
RockyRacoon's picture

Mr. Bass is not buying HOUSES.   He's buying MGIC.   Big difference.   Look at this the way he does.  

What's with all this shortsighted analysis going on here?  Sure, it's a gamble but I'll bet his brain works quite a but differently than ours does.    I ain't gonna run out and buy MGIC since that's not my style.   I'll stick with the nickels.

Mon, 11/07/2011 - 17:23 | 1854740 chunga
chunga's picture

Real Estate agents and title insurers should read the Bevilaqua v. Rodriguez decision from the MA SJC on Oct. 18, 2011.

If you buy a house from someone who lacked the right to sell it (and a savvy attorney runs the title) guess what? You're shit out of luck.

The buyer's only avenue of recourse is to sue the seller and their agents.

Mon, 11/07/2011 - 18:06 | 1854858 MachoMan
MachoMan's picture

Chunga, not to pee on the parade, but with void judgments, this has always been the law (pretty universally)...  nothing new with that case... 

Needless to say, in these situations, all of the parties other than the movant will get together and enter into a private agreement not to sue so as to present a unified front in court...  now, if the sale gets voided, then you bet your sweet ass they'll all be falling over each other to sue (buyer at foreclosure for sure)...  but, until that time, they'll all unify all efforts to ensure the sale isn't invalidated...  presuming that the purchaser doesn't also want it invalidated (underwater, etc.).

Mon, 11/07/2011 - 18:46 | 1854969 chunga
chunga's picture

We had a "to and fro" going on about discovery a while back. I think the Bevilaqua court stuck another foot in the door that a homeowner does indeed have the right to challenge assignments despite servicers' claims of privilege. I used a bank-robber analogy but this one is better. Suppose you get audited by IRS. How do you think they'd respond to a privilege claim citing a trade secret?

People are going to be pretty upset after they buy a short sale, REO, whatever and then get kicked out. This Babcock has done just that. It may not be fun but he has a duty to his client. I almost emailed you the live stream link but it happened pretty fast and it was late. It would have been interesting if you could have called into the show. Many people have been foreclosed and the action is not only voidable but void.

Most run away or don't have competent, aggressive counsel. Give this a listen if you have time. I think he'll be on again, if you want I'll give you a heads up and make sure you get through. This is going to be a huge mess.

Catch the Replay of Citizen Warriors Radio with George Babcock November 5th 2011

Mon, 11/07/2011 - 18:57 | 1855002 Atlantis Consigliore
Atlantis Consigliore's picture

Location location location,  ....LOCATION its all location and politics;  2012 they force fanny/freddie to refi NO DOC

the 25 % of the 50 Million homes negative equity to win:

then they buy out the blue states to swing the election; 

political analysis, with a  QE 3-4 for 2012

the FED monetizes all foreclosures and pending fanny freddie loans in default or 90 days NOD;  at 100% from banks;

Thats 15% 50 million supply;  worth 5-6 Trillion Stimulus:

 thats 7 million homes including

shadow;  ie;  foreclosed, 90 days behind and massive REFI of 25% homes underwater,  7 million homes ....   

can kicked down road past election, like the Super committee, 

oh a squeaker, but game set match, with taxpayer funds. 

Mon, 11/07/2011 - 19:22 | 1855045 chunga
chunga's picture

That's just not right to stuff the taxpayers with the tab and that was and is the plan. Its the servicers (who ironically in the majority of instances have no skin in the game) that have reaped the benefits through systemic fraud, that should be held to account. This Kyle guy knows who the named insureds are on these policies and when the time is right the TBTF card will be whipped out from the bottom of the deck.

Tue, 11/08/2011 - 01:05 | 1855612 MachoMan
MachoMan's picture

I dunno...  I guess they just run courts differently elsewhere...  but most of the time, the judge isn't going to take any shit around these parts...  if someone claims privilege, then they'd sure as hell better be able to cite some case law or legal basis...  hell, some claims may be summarily dismissed in regards to discovery defenses... 

But, in my case earlier this year representing the buyer at foreclosure sale (and winning), the title insurer picked up our tab...  gonna be a lot more of those...  hopefully the title insurers pick a good race horse.

However, if we had lost, the bank (handling the foreclosure) would have gotten sued...  it's basically a gut lock...  they'd just cut a check and we'd go on...  there is no denying liability at that point if we would have been divested of ownership.  There is a SHIT TON of liability in this regard sitting out there for banks.  So many of the procedural hurdles render judgments void if they are not followed exactly as required...  and, as previously stated numerous times, void judgments eliminate the necessity of showing a meritorious defense (which is basically a show stopper for any deadbeat borrowers since they would simply lose on the merits...  being in default and all).  In that case, the title insurer really doesn't have anything to lose because they'll just recoup any damages from the bank...

Mon, 11/07/2011 - 16:52 | 1854607 The Swedish Chef
The Swedish Chef's picture

He won´t lose as much as he would´ve if he bought six months ago but this must have a knife catching element to it... 

Mon, 11/07/2011 - 16:52 | 1854609 TradingJoe
TradingJoe's picture

He's betting on printing, which we all know is lifting every asset class, including home sector and its broke insurance companies!

Mon, 11/07/2011 - 16:53 | 1854611 rockraider3
rockraider3's picture

To this guy, it would seem that Bass is making two contradictory long term bets.

1. Going long US housing via MGIC, and

2. Holding $1MM worth of US nickels for their metal melt value.

Not sure how you reconcile those positions.

Mon, 11/07/2011 - 16:58 | 1854637 Hindsight2020
Hindsight2020's picture

Both are inflation hedges or am I missing something?

Mon, 11/07/2011 - 17:11 | 1854693 rockraider3
rockraider3's picture

Owning MGIC isn't the same as owning a hard asset.  Nor is it a REIT or something to that effect. It's a mortgage insurer.

Further, the US nickels is not just an 'inflation hedge' -- it's the ultimate inflation hedge.  It's a bet that the US dollar fails.  Because it's illegal to melt US currency, so even if copper/nickel skyrocket and the inflation hedge works, you can't take advantage of it (legally) unless the US dollar fails. 

And if the US dollar fails, who gives a crap about MGIC, it's probably worthless.

Mon, 11/07/2011 - 17:15 | 1854716 RockyRacoon
RockyRacoon's picture

Finally, some lucid analysis....

Mon, 11/07/2011 - 19:09 | 1855021 Hindsight2020
Hindsight2020's picture

While I'm not saying there isn't a chance of everything going in the crapper as you've explained I think Bass' current thesis isn't that extreme.  If he thinks the US is able to grow, creating moderate inflation while keeping housing afloat then MGIC will pay off.  As for the nickels I don't think of it more than a publicity stunt, a Google query for "Kyle Bass nickels" yeilds 12.6 million hits.  By exhanging <1% of Hayman's assets from cash to coin I'm sure he was able to attract more capital from those whom this message vibed with plus the value of these nickels will never be less than $.05 so minus storage/security costs (I'm sure some guy who advocates firearms and gold has some other assets to protect) these are basically risk free assets.  Plus if they change the composition of the nickels he'll have a near inifnite supply of nickels to can keep those people on eBay who pay extra for older US currency satisfied.


Personally I don't think this is the best strategy for the time but we're only seeing a portion of the plays he's executing so I wouldn't get so down on someone with his credentials.  I take what he has to say into consideration given his timng of when sub-prime was going to break and agree with his bearish views of Europe and Japan but you won't find me stashing rolls of nickels.

Mon, 11/07/2011 - 17:15 | 1854710 MachoMan
MachoMan's picture

Sometimes having ANYTHING after an engagement is better than every other alternative...

Mon, 11/07/2011 - 18:36 | 1854941 Fukushima Sam
Fukushima Sam's picture

Keep an eye on the Rossi e-cat invention.  If it turns out to be real then the price of nickel is likely to skyrocket.

Tue, 11/08/2011 - 16:29 | 1858027 rockraider3
rockraider3's picture

Great, but once again, Bass cannot (legally) take advantage of the metal content in his US Nickels unless the US dollar fails.  That is the only way he can benefit from any inflationary or metal content spike of the coin, because without the currency failure... it's just $1MM in nickels.

And don't get me wrong, I love the nickels thing.  I thought about the same thing about a year ago, but then decided against hoarding the coins because I didn't think I'd accumulate enough to make a difference, nor am I interested in filling my garage with pennies and nickels.

That said, it's still an investement that is at odds with an investment in MGIC.  And for what it's worth, I was long Syncora for quite some time, which is not that dissimilar to MGIC.  But recently sold off based upon the premise that Countrywide will eventually have to be thrown into bankruptcy.  Bass is right that the courts are finding in favor of the bond insurers, but ultimately, I don't think Countrywide will be able to pay.  So where does that leave MGIC and Syncora et al?  Not sure, so I exited.

Mon, 11/07/2011 - 17:02 | 1854624 devo
devo's picture

It's funny, I have enough cash right now to buy a house outright. But, you can't make any prudent investment at this time because prices are too distorted. It is impossible to quantify the real value of anything. People will get suckered into bad investments because of this, and it'll cause more pain down the line. Right now the bubble is in government debt, eventually it will move to gold and silver. When the PMs are clearly in a bubble it's probably a good time to buy housing.

I suppose a house would be an okay purchase if paid all cash and then rented out to hedge inflation. The investor would lose opportunity cost since a home is illquid, but they would likely do better than holding all cash. I'm hoping a PM hedge and some puts keep my dollar worth something over the next 3 years, and at that time I'll look at homes. I think it's a good strategy.

Also, does this guy understand supply/demand? Where does he see the demand coming from? Possibly some from cash buyers/rentals, but that should be offset by the current generations' plight into poverty. We're likely looking at a stagflation scenario where a landlord won't be able to keep up with inflation due to lower workforce wages. Also keep in mind that housing is a depreciating asset that costs money to maintain. I imagine the condition of homes will drop over the next five years, too, as owners won't have the income to maintain them. This would make them worth even less. It is quite asinine, today, to be bullish on housing.


Mon, 11/07/2011 - 16:56 | 1854627 SemperFord
SemperFord's picture

Maybe Obummers new refi/mod program is on the way to severely reduce foreclosures or maybe not...

Mon, 11/07/2011 - 17:00 | 1854639 Bicycle Repairman
Bicycle Repairman's picture

It's just one position.  What does the rest of his portfolio look like?  This is a flyer.  This is in no way a recommendation on the RE market.  The RE market is most very likely dead for a generation.

Mon, 11/07/2011 - 16:59 | 1854642 AldousHuxley
AldousHuxley's picture

Hi Sarah, Warren Buffett here. I just wanted to congratulated you on a terric victory.

Mon, 11/07/2011 - 16:59 | 1854643 anarkst
anarkst's picture

With ZIRP in place, prices have no where to go but down.

Mon, 11/07/2011 - 17:01 | 1854650 geminiRX
geminiRX's picture

If Canadian houses were as cheap as yours, I would not hesitate in buying especially when you folks can lock in 30 year mortgages as cheap as they are. Waiting for our bubble to pop here.....

Mon, 11/07/2011 - 17:02 | 1854655 jmcadg
jmcadg's picture

Best not to buy into the UK. We're still at those hyperinflated prices he's looking for from Benny.

We tend to get East coast weather two weeks later. Merv is obviously using his financial HAARP at the BofE because prices here are still fuckin ludicrous.

Mon, 11/07/2011 - 17:03 | 1854656 pragmatic hobo
pragmatic hobo's picture

until I see 40% drop in housing price in downtown manhattan I say the housing hasn't hit bottom.

Mon, 11/07/2011 - 17:10 | 1854686 WestVillageIdiot
WestVillageIdiot's picture

Manhattan is still too pricey.  But it has also benefitted most from the financial thievery of the past 3 years.  Now they can say, "the Freedom Tower" and hope that holds up prices.  What a joke.  People buying those new developments on Beaver, Broad, John, Gold, etc deserve to be fleeced. 

Mon, 11/07/2011 - 22:57 | 1855376 Freddie
Freddie's picture

How about those newish million dollar + apts in hipster Williamsburg? 

Mon, 11/07/2011 - 17:04 | 1854658 Dr. Engali
Dr. Engali's picture

Closed at the top of the range. A bunch more weak shorts who jumped on the down draft squeezed out by the fed and the robots. They will never learn. Too bad they lost money on both ends. Gettting squeezed out and their currency against gold.

Mon, 11/07/2011 - 17:03 | 1854659 calgal
calgal's picture

Put your hands up slowly and step away from the crackpipe....

Hello. And what about all the fraudclosures and mers mierda?

Bueller? Bueller?

Mon, 11/07/2011 - 17:03 | 1854661 ghostfaceinvestah
ghostfaceinvestah's picture

BTW, since the article mentions Paulson, note that he too was an investor in PMI, which has failed.

Other notable knife-catchers in the sector include Leon Cooperman and Bill Miller, both of whom got creamed on MTG.

Mon, 11/07/2011 - 17:05 | 1854668 Hondo
Hondo's picture

Investing on litigation proceeds that can never be paid seems very weak to me....more like gambeling.  There is no growth in that business...the balance sheet expanison game of acting like a public CDS is gone for good.

Mon, 11/07/2011 - 17:58 | 1854829 NotApplicable
NotApplicable's picture

It's not gambling if you have inside info. Of course, it might be an attempt to fleece him, depending on whether his club dues are paid up.

Mon, 11/07/2011 - 17:11 | 1854672 Dr. Engali
Dr. Engali's picture

Stocks Edge Up in Volatile Trade as Debt Worries Turn to Italy; Dow Breaks 12,000


Yahoo headline says it all.  We are climbing the wall of worry. We broke through that phycological level of 12,000. The waters fine. Jump in sheep.

Mon, 11/07/2011 - 17:12 | 1854677 Caviar Emptor
Caviar Emptor's picture

If all those houses selling for $500 go to $600, they'll claim the market "skyrocketed" 

Mon, 11/07/2011 - 17:09 | 1854679 alien-IQ
alien-IQ's picture

I wouldn't read too much into this purchase. This stock was trading near $12 at the start of the year and has been sitting at the $2 range for about 2 months now.

Looks to me like he just spotted a bottom on the price and went for it.

I don't take this as any "believe in the housing recovery". at all.

It's a trade, not an investment.

Mon, 11/07/2011 - 17:10 | 1854683 mynhair
mynhair's picture

He's betting on ODummer being a one-termer.  Good bet.

Mon, 11/07/2011 - 17:11 | 1854690 Strawboss
Strawboss's picture

What isnt being considered (based on the posts thus far) is the impact that the baby boomers are going to have on the housing market.  As they get sick and need nursing homes, there will be pressure to sell their assets to pay the bills.  As they die off, their estates are going to be liquidated so that the greedy heirs can cash in on the scraps.

These demographic realities will cause millions of additional properties to hit the market year after year after year after year in addition to the foreclosures and the normal amount of selling that occurs each year.

I am having a very hard time imagining that housing has hit bottom.  The supply/demand fundamentals tell me that there is still a HUGE pile of supply that hasnt yet cleared the market (and wont for many, many years).

Mon, 11/07/2011 - 17:52 | 1854804 MachoMan
MachoMan's picture

Yep...  tack on the properties that are going to be sold via tax sale (while your bank may not foreclose if  you don't pay the mortgage, the state will get its due)...  given the volumes, states are going to pass streamlined procedures for this as well...  whatever the absolute minimum required for due process...  and possibly even less... 

The only thing that has kept this problem out of the light is that it takes so long for properties to finally be auctioned from their certification date to their respective states...  But, starting next year, we're going to get some 2007 vintage properties and then 2013 is when the avalanche starts...  the states are already preparing for the influx via streamlined procedures...

rocket docket v. 2.0

My guess is these properties aren't listed at net of tax owed on the bank books ;)  [because it's a dead ass loss and has to get paid by the first mortgagee or else]

Mon, 11/07/2011 - 17:11 | 1854691 There is No Spoon
There is No Spoon's picture

He is essentially buying a LEAP at this share price. The size of the investment is less than .5% of his AUM. On the other hand,

"High delinquency rates have plagued Mortgage Insurers. Last week MGIC said its third-quarter cost of claims from mortgage defaults rose to $462.7 million from $384.6 million in the year-earlier period, as more homeowners fell behind on payments and claims were made on previously disclosed delinquencies. The insurer, which has been unprofitable for 16 of the last 17 quarters, said its third-quarter net loss widened to $165.2 million, or 82 cents a share, from $51.5 million, or 26 cents, in the year- earlier period."

Mon, 11/07/2011 - 17:13 | 1854703 Piranhanoia
Piranhanoia's picture

When a vulture like this is using government money to prop up something dead on their order,  because they're counting on a statement by old kyle might even make the smarties think he's telling the truth, you have the perfect soup.  It just doesn't have enough elements to form the basic building blocks of life. The drain is open and the bowl is filling up.  It's magic.

Put the pieces together. 

Mon, 11/07/2011 - 17:19 | 1854726 SwingForce
SwingForce's picture

MGIC is poofed. They are not paying on any obligations they are liable for, great business model. Another fraudster. If they are not liable, they I am not liable to pay my mortgage either. Great way to run a railroad. 

Mon, 11/07/2011 - 17:37 | 1854777 chunga
chunga's picture

Bingo! SwingForce got Bingo!

Mon, 11/07/2011 - 17:21 | 1854730 sabra1
sabra1's picture

amazing how CRE is hardly mentioned anymore!

Mon, 11/07/2011 - 17:22 | 1854736 New American Re...
New American Revolution's picture

I think your last observation of the latter, and not the former is correct.   But the day is coming.

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