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Kyle Bass On Rehypothecation And Other Keynesian Endgame Scenarios
If readers have the sense there has been a deluge of Kyle Bass reading (and viewing) materials on Zero Hedge in the past two weeks, it is because there has been: and why not - after all, unlike all other cheap talking heads, and know-nothing pundits who merely need a suit to make an appearance on one of the TV's financial comedy channels, Kyle has been consistent in the most important thing - telling the truth. Today, he took his resurgent popularity to CNBC which always knows which way the winds blow, and told David Faber more or less everything that Zero Hedge readers know already about Europe's collapse, on why the ECB will print but only after a default, and about the inevitable global debt restructuring. There was a twist: as most regulars here know, the key topic of the past week, of December, and potentially of 2011, is the limitless "fractional Prime Broker lending" of assets-cum-liabilities (and when it comes to the realization that one's gold itself may be rehypothecated, via GLD, it is no surprise why paper gold is plunging, with the expected delayed effect of slow comprehension) in an infinite loop of daisy chained counterparty exposure, also known as rehypothecation. Which is precisely what what Bass touches on 9 minutes 30 seconds into the interview when the discussion shifts to "shortening collateral chains." Must watch for everyone who enjoys not being lied to.
The most recent Kyle Bass investor letter can be found here, and a far more extended interview is here.
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He had a basis, it was just a falsehood platitude.
I can't remember the exact quote so I'll paraphrase.
"If they break apart there will be no banking system and so they will stick together."
Kyle Bass however apparently thinks the payment mechanism will work like it did in the Lehman case. I think this is orders of magnitude worse then Lehman and I think that outcome would be difficult to predict.
Yes - strength in common purpose. "Fascismo" derives from "fasces" which was Roman term describing a bundle of rods strengthening an axe. One fascisti can be broken, the bundle together holds strong.
Fascism is attempting to transcend its nationalistic underpinnings.
Well Europe is like a bundle of feces.
He didn't even bother to ask a question he did a "I think they'll stick together"...what dya think about that huh?
perhaps because they were not talking about the same scenario - Bass was on a debt default scenario, Simon on a "back to the old currencies" scenario. Mix in that Bass at the beginning was labeling his scenario a "breakout of the EU" and Simon's confusion was understandably perfect.
Interestingly Bass is convinced in the "robustness" of the transactional part of the commercial banking system. Somehow he gave me the impression that he thinks this could have been fixed at the liquidity stage! Gotta read more from him, definitely interesting...
'Somehow he gave me the impression that he thinks this could have been fixed at the liquidity stage! Gotta read more from him, definitely interesting...'
He never implied that there was a 'liquidity stage' in my estimation. He simply wanted to say that Greece had a moment to come out three years ago and restructure with having to put much strain on the other EZ countries. Now we have absolute contagion. Nowhere to run, the effects of this bank run have yet to be felt.
Read the Hayman newsletters since May 2010. It'll blow you away how sober this man is.
rueters reports that Credit Suisse n NY just got a "special christmas package"...
building being evacuated...
bankers better head for the bunkers bithcez....
love it..............
Just seen that myself.
Fear begets fear. The market is full of it at the moment.
Mailroom scan showed batteries and wires inside a package. Prudent decision to investigate ... turns out to be a camera. Part of the building was evacuated - not all.
Fearmongering begets fear. Prudence begets caution ... a wise, informed approach. There is a difference between fearmongering and advising informed caution.
Wow...the man is smart. Those talking heads on CNBC were kind of in awe as Bass did most of the talking. He made Simon look like a buffoon.
bank runs, gentlemen.......... i made my own bank run 18 months ago & flipped it into metal .... thank you for the "hard" lessons learned here on this website, i am grateful to all of you. bankers, more bankers, damn bankers ....... I'm not going down with this ship . bless your golden hearts here on this website.
Hope you got some worthless fiat left to buy the next major dip in early 2012.
thank you . i'm still a novice & appreciate advice. of course, everyone will be dumping, i'll be buying with glee / HAPPY DAYS / silver on the cheap . Our wealth will be counted in ounces, not dollars.
Sooner or later they are going to come to terms with the fact that trying to solve a debt crisis with more debt that is created with nothing to back it is nothing more then a song...
Don't your feet get cold in the winter time?
The sky won't snow and the sun won't shine
It's hard to tell the night time from the day
You're losin' all your highs and lows
Ain't it funny how the feeling goes away?
http://www.youtube.com/watch?v=0BwOXlGbW6Q
Europe's toast. A disaster zone just waiting to happen. End game.
And yet I can buy more gold today with my Euro than I could yesterday.
Errrr. could someone explain??
because on their long way to worthlessness fiat currencies have periods where they are desperately needed?
you should see how much my darling spends, and comes back for the worthless currency...
I don't mean to keep pissing on everyone's sandcastle but isn't the whole gold paper market crashing party a bit premature here? I hate sounding like Robot but TIP XLU LQD etc are all green. Shit even the financials are fine. If this was the crash you wanted I must have missed something. Junk me to oblivion but I don't get it. Even Jim F'n Rogers is long the dollar here.
You're right. But there's more to it. The slow grinding crash is intact and in progress. Because demand has collapsed and deflation is knocking on the door again...but...the Fed and C Bankers in their wisdom think the cure is monetary expansion. After 3 years of "the cure" we've proven that although stock prices, bond prices and food and energy prices do rise, household net worth, real median incomes, res and commercial real estate all drop...and drop..and drop. There is no growth in real terms. Jobs and whole industries keep going offshore, we keep handing money over to other countries by feeding our twin deficits (trade and fiscal) and capital (financial and now even human) follows. Net result? Biflation. The domestic economy is going to hell, slowly being bled dry and geopolitical risks are increasing as buying power and the middle class keeps getting crushed. The cost of living, working and doing business will continue to outstrip the potential for profit.
So no you won't get a "crash". THat would be real capitalism in action. The process of creative destruction would ensure that the failed, inefficient business models would fail and new ones would spring up in their place with new vigor. Ahh but that would mean the status quo, and the people in power would lose big: through defaults and bankrupticies. Debts would cancel. And they sure as hell don't want that. They'd rather ride the slow grinding crash all the way down while they get fat off the failed zombie banks, the Fed's largess and the collection of debts incurred at the peak of the cycle. Nice.
The central banks arent really trying to grow personal incomes in real terms. They are trying to make the downward adjustments easier by stable or slightly decreased nominal incomes. A slow slide to a lower standard of living is less disruptive than a fast slide.
I doubt they have any illusions that they can bring about robust growth.
Net worth dropped 4% in Q3, real incomes down 8% since 09. That's abrupt. Especially if you consider that annualized US CPI inflaiton is humming at 3.5%. They are delusional. Because there is no such thing as "gradual downshift in standard of living". If you suddenly can't afford payments on your home, car or your life in general, that means you default and have a major disruption. They're also disregarding collateral damage like entire communities folding up the tent, offshoring of capital and political turmoil
Hmm. You do make it sound difficult, but the alternative was a huge crash and probably a thirty percent drop in personal incomes over a year or less.
That is riot level change.
All I am saying here is if you want to buy physical today you can. Maybe you have to pay up for it but there is supply. There is a lot of scare tactics on this thread and it's bullshit.
Kyle Bass correct again,
Here is my House Oversight Committee testimony for tomorrow on the futility of trying to bail out the Eurozone Titanic.
My House Oversight Testimony on The Eurocrisis, The Fed And Implications for Taxpayershttp://confoundedinterest.wordpress.com
Simon usually screams and argues with everyone, Kyle shut his ass up, they who know who the smartest guy in the room is, perhaps on the planet with this shit.
GOP candidates here is your best treasury secretary choice if you can get him.
Give him the FED. Then let him run the bastards out of town.
don't forget what they did to martin armstrong.
Please consider changing the title to "Kyle Bass on the Eurozone Doomsday Machine"
Is Bass stil waiting for the Yen to crash?
Japan is dead. Their debts is even worse than the USA and Europe. Bass went through the numbers in another video. Japan's demographics are terrible and the nuke power plant mess is an ongoing unreported disaster.
Not disagreeing just reporting the latest on the plant is that they may have a cold shutdown very soon.
http://english.cri.cn/6966/2011/12/14/53s671646.htm
I don't want to argue but how do you have a cold shutdown with a multiple core dump scenario?
Is there a magic glacier below Fukushima?
Um, the best source of info for Fuku is here:
http://fairewinds.com/updates
And, I have no idea how they can have a cold shut down ... hell, it was critical not a month ago based on isotopes they found on the site ... its a complete disaster ... I have yet to see a credible plan to deal with Fuku.
Regards,
Cooter
From your link:
As the precise temperature of melted fuel in damaged reactors cannot be accurately measured, there's no way TEPCO can determine exactly how stable the damaged reactors are, leading experts to warn that the government should not be over-zealous in hitting deadlines to declare the plant safe, at the risk of misleading the public and globally concerned community.
Gold is on sale!!!
Kyle Bass is my hero.
Bass/Paul 2012.
They will put anyone on TV that can keep the gold and silver pipe dream alive while the bankers dump.
I love how a tax and spend Northeast Governor/Senator/ex Goldman CEO inadvertantly exposed and maybe crashed the System.
As a MF Global bagholder I urge all of you to get out while you can.
When push comes to shove, these scoundrels will ignore centuries of law and tradition and just TAKE your money.
Fuck them ALL
I, too, had/have (?) and account there...write off.
That sucks to get Stolpered like that.
Yes. Yes it does. I did not have my livelihood tied up in the account, however, and so consider myself fortunate. Many of the individuals harmed in this have their capital tied up and cannot access it. These guys are dead in the water, and Corzine and Co. and the regulators! cannot give them relief. Ridiculous and very, very sad.
And look at M1 Money Multiplier and Marginal Contribution of Federal Debt to GDP charts. They have collapsed!
Here is my House Oversight Committee testimony for tomorrow on the futility of trying to bail out the Eurozone Titanic.
My House Oversight Testimony on The Eurocrisis, The Fed And Implications for Taxpayershttp://confoundedinterest.wordpress.com
You trolls who have occupied our space for a while now. I would like to suggest you all Exit to the left, no pushing please, and no stepping on and over people....This is not WalMart on Black Friday. This way to the exits. This way please.
Thank you.
Reality insists that paper is not gold. That lesson gets hammered home at least once a day. The truth simplifies everything. As with this interview, stating the obvious works, every time.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
The ECB could offer € 2000/oz. for gold, and remonetize it by removing all taxes associated with holding or exchanging bullion bars or minted coins. If that's not enough, they could offer more.
Should we expect to see a disconnect between GLD and PHYS?? I would think so. Opinions?
He is too smart and well worth listening too.
Would someone please discredit him, before this really gets out of hand.
If only paper gold price is plunging then it is not a real gold buying opportunity.
Also, if GLD never bought that gold it says it has, then there is a lot more gold out there, availble on the market, than previously thought which would make the price of physical gold plunge.
If on the other hand, GLD bought that gold and "lent" it, then there is not enough gold availble and its price should climb. But which price? Paper or real? And why the shops show prices that are always very similiar to the official price set by the CME?
I sure am glad that my gold and silver is kept in The Bank of Mother Earth!!
when sorrows like central banks plot evil, whatever my lot, thou has taught me to know, it is well, it is well, it is well with my gold.
print after default? cds payouts?
really? we will need more court rooms.
KB - "...they are pulling back the collateral they had lent to primary brokers..."
Which is exactly what U Tx did when KB encouraged them to pull $1 B in gold bullion out of COMEX, reducing its available stores by 40%.
And exactly what KB did when he got delivery of $1 million in nickels
So, here's your thought experiment for the day ...
What happens when there is no more collateral and the PB's are swimming naked in a sea of broken glass, hmmm?
For six decades, U.S. dollars were exported around the world in return for goods and services (but mainly raw materials (40's to 60's) and then energy (70's onward). The acceptance by the rest of the world of the value of the dollar fuelled this unprecedented credit expansion. Today, that acceptance continues as the rest of the world seeks safety in the US dollar so that it can buy US bonds.
The question is what happens when that credit expansion is reversed. Bill Gross commented the other day that the great deleveraging that is going on now creates dollar scarcity. I am trying to wrap my head around this statement. For decades the US filled the world with dollars. Indeed there was a hunger for US dollars as US hegemony expanded and the world took in dollars. Now that the global credit expansion is turning to contraction (deleveraging) can it follow that there is again a hunger for dollars that creates scarcity. On the face of it, it makes no sense.
The key to understanding this, as I believe Kyle Bass recognizes, is that the great deleveraging is not real. There are huge amounts of dollars sloshing around the globe which is actually the cause for the volatility and correlation we see across markets. It is no longer a question of what to buy with dollars, but whether to hold dollars or hard assets. In the end, the answer will come in the form of hard assets. But the myth of deleveraging is postponing the moment.
By the way, you know how to tell that this "great deleveragin" thing is complete bunk? Just go to the U.S. Treasury's Office of the Comptroller of the Currency and review the latest quarterly derivatives report. You will see that all the big global banks are still leveraged at 40:1. JP Morgan, with about $2T in assets, has $80T in derivatives positions. Even if most of those positions are hedged against each other, that is still a huge exposure which outsizes the entire US economy.
When you see leverage like that still in the system, don't question why prices do not reflect realitities. The answer is clear.
IMO there was a much greater creation of credit instruments, and layers of borrowing, etc laying claim to future dollars. So, in effect, if the systems starts to unwind those dollars go to ice and are pulled, not to recirculate. Hence "dollar liquidity darth". The dollars WILL be forth coming IF they can get the political backing. However there will need to be a very impressive crisis for politicians to agree to allow massive printing of dollars. So, expect yer needed crisis. Then expect political weeping and gnashing of teeth. Then expect a "plan of global salvation". Then expect hyperinflation in US $.
I don't understand. If there is truly a shortage of dollars, then you are free to print money and it should not cause inflation because the inflationary effects of printing offset the deflationary effects of the dollar shortage.
I don't understand. If there is truly a shortage of dollars, then you are free to print money and it should not cause inflation because the inflationary effects of printing offset the deflationary effects of the dollar shortage.
Had to thumbs up U BB---no doubt that the spin of deleveraging is currently at warp speed and your point in regards to the derivatives report shows NADA deleveraging. Nothing short of 100 times quintuple check kiting is all the TBTF have and are currently getting mandingaDDDDD.
Fund withdrawls are certainly ending up in the smaller regional banking system and PMs---the system as the TBTF know it will crash but the small system, as we know it ,will be business as usual . My view is that if it was jan 2012 we would be in waterfall mode.
Many thanx to ZH for the nonstop truth-out. Doesnt look we will get any decompression time off this year or next.
BB - good analysis but it really depends on how one defines "deleveraging".
I believe that Bass is defining it as the market selling paper assets ('cause they expect default) prices go down regardless of the availability of paper dollars. USD is still the most liquid FX thus they flock to the liquidity.
BUT, after they have "delevered" from paper assets they look to spend the USD (sloshing around in accounts) on hard (no or very relable) counterparties for their transactions of assets required for existence.
PMs, food comodities, farm land, water,...and yes "tools" to protect one's life and livlihood. It's just the timing of events that you disagree with Bass on....I think. Cheers.
I agree with Bass that the defaults in the € zone, states and
banks, happen first then the printing begins. He thinks the € zone
will break up. I think it won't. I see the € zone allowing strategic
defaults and then propping up the € zone system, states and banks,
with new fiscally binding treaties and ECB printing after the
strategic defaults.
The best time to do this is Dec 24.
OK - so why was Simon Hobbes brought in for a question, and good ol' Simon just wants to argue and say "Kyle you are wrong in so many ways..." - what is the value of that conversation? And why the argumentative tone about it? Seems like a bit of desperation is settig in.....
Simon was pumping the idea that the crisis will drive the Euro-zone members together, not apart. If he could get Bass to waiver on that publicly he could then take that back to his investors and say "Kyle is not so sure there will be a break up" and get a few days worth of milage from that.
However Bass directly asked him a question about his willingness (personally) to take on the financial risks of his whole family (without controls over their own deicisions). And the answer is obviously "NO". Same scenario, larger scale.
I definitely admire his ability to refrain from using expletives and even sounding sympathetic towards the genocidal maniacs that put us in this position. Let us not forget what was supposed to be a solution to the financial crisis pitched by the same devils trying to place airbags for the crash-- make no mistakes this cycle (like the concept of [re]hypothecation) is another form of transfer of capital via leveraging any productive into minimal existence.
Look. I know we are all thinking the same thing.
Where is robo?
Go get em Kyle!! Thanks for speaking the truth consistently!
Tyler...check this video out...
Zerohedge Xmas cheer video
Here is your disconnect. Physical $35 USD. Over.
http://store.greatpanther.com/
.... Yeah, disconnect. Gold down $80, bank stocks up. What a suprise.
Could go two ways. Either a lot of dummies buy back their contracts, removing the hypothecation. Or a lot of dummies default on deliveries. It is sad that it is even a discussion. But that is what the CME has done to itself. On an honest exchange, the dummies get squeezed and that is the end of it.
http://tiny.cc/m275o
An endorsement by Andrew Sullivan (The Dish)
Does anyone know where I can find an imageof the palets of nickles (20 million of them) that Kyle Bass has stored with Brinks?
He evidently was showing journalist a photo (as reported a few times), but has the photo ever emerged online? I can find one.
http://www.investorvillage.com/smbd.asp?mb=4165&mn=25204&pt=msg&mid=11059304
CNBC - whoosh! Swish! Splash! Whee!
Fucking annoying.
DavidC
Tyler, you have posted an awful lot of Kyle Bass clips. As a matter of fair disclosure, can you or anyone else tell me what his year to date (month to date, quarter to date, whatever you have access to) returns have been? I don't at all dispute that he has been right about a lot of things, but to put it in persopective, how much has he been able to profit from his insights? Thanks.
Kyle kicking ass again. Straight talk. I bet $100 that Simon's Herman Miller Aeron had a wet spot after that smackdown. Time for a bathroom break.
The EU is on fire and it will cascade to the US, prepare accordingly:
http://i2.photobucket.com/albums/y44/mfingar/OBR_Carbine.jpg
Gold. Yum Yum
I especially liked the smackdown of perpetual Euro-hopium smoker Simon Hobbes.
Worth every minute to watch, from beginning to end.
That limey, his only purpose on CNBC is to pump up the ponzi.
Guess the higher ups thought the British accent made his BS sound believable.
Can somone please explain why anyone with gold assets other then physical, physical that they possess and can touch, would believe that their paper asset is worth ANYTHING???? Forgive me if this is a silly question but as an avid Zero Hedge reader without any financial/trading background, I am trying to educate myself and understand.
Trust.
Why is GE or GM stock worth anything?
AAPL is worth something because their products are (at the moment). I would not wanted to have owned AAPL in the early 90's because before Steve Jobs came back their products sucked.
BOA stock is perceived to be worth something, even if it is worth 0.1 cent per share because they are insolvent - but - it will be backed by the FED and the Treasury using taxpayer money whether they are stealing homes and blowing their wad on executive compensation or not.
GLD? I don't know - can you trust it? Can you trust anything? How much do those selling the shares want the value of the shares to continue and are they conservative and prudent or speculative whores? Are they backing the shares with physical gold or are they leveraging it, skimming it, commingling it, doing a Corzine? Who do you trust? What do you trust? That is the value.
I agree with you, own physical, but I own PM stocks in my IRA because I would rather have it there than BOA or GM. I am voting with my money and making a statement about what I trust, and don't trust.
Can somone please explain why anyone with gold assets other then physical, physical that they possess and can touch, would believe that their paper asset is worth ANYTHING????
**********
When you say "gold assets" i assume you are referring to stocks of gold producers?
The short answer is of course they're worth something-they are involved in digging real money out of the ground-
I for one do not think the dollar will collapse-it might "start" to collapse but there is a mechanism that can save it and that would be gold-in fact i believe that is what will eventually happen-
It doesn't even have to start with the dollar and i don't think it will-it will come from some other major currency-maybe the Yen or possibly the EUR first-
When it happens there will be only one way to save it and that will be to weight it to gold-
As soon as "any" currency has a gold component-it will draw all currency traders to it and all other currency will be sold off-starting with the next weakest-very similar to the debt contagion we see happening in the euro zone-which will force that country to equal the gold weighting and on down the line-this will not be some slow lackadaisical happening-it will happen very fast and in full panic mode and you will see central banks/governments buying gold in a panic on the open market which will force a massive short squeeze with the commercials-so then you will have central bankers and commercials forced to cover and bidding against each other at "any price"
This will be what propels gold towards the 3-4-5000 price and producing miners will benefit greatly-
Who knows when that will happen-but i believe it will happen and my guess is-it will start with the Yen-
What's the average investor to do when the world is crumbling in front of them?
Kyle Bass is genius....just tell me what to do.
I believe their will be quite a few less hedge funds in the world... after todays declines. That herd needs to be thinned!.. there are only a few Kyle Basss' and Hugh Hendry's to go around.
Bass is a lot clearer than the hieroglyphics of Zero Hedge.
Tyler, Kyle Bass and Hugh Hendry..the trifecta of market insight.! Hendry is a genius for shorting China, my premise is the US will follow shortly. His timing is what amazes me...it's one thing to have a good macro call and another entirely to execute on it..
LIBOR broke up 55 points ! maximum of may -2010 !
credit markets are in crash !
see here : http://pracompraroupravender.blogspot.com/2011/12/taxa-interbancaria-libor-de-3-meses-na.html
The system is locking up, just like Kyle said they're realizing that it's a solvency not liquidity problem.
Every one ready for a re-run of 08 only 10 times bigger?
China and the Brics have had steady declines all Year, unlike the whipsaw the US Mkts have had, that changed today.
Question, if PM paper takes a HUGE dump it will in the short term take physical with it right? So how long will PM paper affect physical or how long will it take physical to rebound once PM paper is deemed crap?
Double this question.
Also, is there a possibility that physical PM's will not rebound?
If paper market crashes and demand for physical is not increased, given high margins in mining industry, can it be that physical will stay at lows for a long time?
Thanks.
Two things he mentioned that are nuclear IMHO.
1.
“Bank runs” in the PIIGS. The graphs are all pointing down, when do they close the bank doors and the real fun starts in these countries?
2.
He says people are pulling collateral out of these re-hypothecation (man that is a mouthful) accounts so as to protect their assets. What is the evidence, how much and what are the ramifications?
The deflation beast is rampaging in Europe, Bennie cannot yet print with oil near $100. But he will eventually as he is a student of the great depression you know …
sschu
Just a little something I noticed: when Kyle Bass starts a reply with "Yeah, so . . .", he's about to kick your argument square in the nuts.
The fake "whoooooshing" noises with the changing of each chart was really, really annoying. But I'll watch Kyle Bass anytime, anywhere. It's like a lesson at the foot of the master. Also, he's sorta hot. It's okay, I'm a woman. Do not cringe. Do not look away.
The markets are reading the crisis as a liquidity problem, when, in fact, it's a solvency problem. The market will eventually figure it out. LOL What a funny ending to the interview. The market will eventually figure out that it's all a Ponzi scheme, Bass says, nonchalantly.
Agree with you totally, so could you say we have a Prosecution Problem in that whatever financial calamity happens.....no one is allowed to be liquidated or go to jail? Essentially any of this could have happened 10 yrs ago since the leverage has been going on for a while? So, its a bit of a farce with the Crisis talk. If any of us had a liquidity or solvency 'Crisis' we get our asses liquidated. Maybe Corzine is genious, he knows 'it' can never be prosecuted because its everywhere. Makes Raj look like petty theft.
Either we accept there was never a real mkt....or that it was actually a mkt and now we begin the next big phase called La La Land where govts and important people are not allowed to lose.
All hail Kyle Bass, one of the few people in the financial industry that shares his knowledge with integrity and reasoning. When the unwashed masses strt lynching finaincial pundits we'll make sure they stay away from your heavily armed fortress in Texas.
Bass is no dummy, so what's with the disturbingly named fund?
Seems like everybody is just now figuring out how all those giant index funds have such low fees...they all take "your" securities and lend them out all over the place. Vanguard is the worst, State Street second, Fidelity a close third...
My Uncle said the last he saw a market like this is when he invested in toilet paper a revolving doors, he said got wiped out before he could turn around.
Did you know that deep sea phishing can get you dead?