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Kyle Bass Vindication Imminent? Largest Japanese Pension Fund Begins To Sell JGBs
Sayonara internal funding. In what we suspect will become a major issue (and warned in April of last year), Bloomberg reports that Japan’s public pension fund, the world’s largest, said it has been selling domestic government bonds as the number of people eligible for retirement payments increases. "Payouts are getting bigger than insurance revenue, so we need to sell Japanese government bonds to raise cash." It would appear the Ponzi has reached it's Tipping Point. Japan’s population is aging, and baby boomers born in the wake of World War II are beginning to reach 65 and eligible for pensions. That’s putting GPIF under pressure to sell JGBs so it can cover the increase in payouts.
The fund needs to raise about 8.87 trillion yen this fiscal year. GPIF is historically one of the biggest buyers of Japanese debt and held 71.9 trillion yen, or 63 percent of its assets, in domestic bonds as of March.
This leaves the biggest question "to whom will the pension fund sell?" After all it is all marginal and everyone just front-runs the biggest players (Governments and their Central-Bank caring internal funds). Now that the pensions funds are out, there is no more incentive to frontrun them - a la The Fed - which is summed up by the fund's manager "There isn’t much value in short-term notes as the BOJ’s massive asset purchases have made their yields extremely low."
From our April 2011 thoughts:
In the world of bonds, few things have perplexed investors as much as the ridiculously low (and going lower) rates of Japanese Government Bonds (JGBs), at last check yielding 1.22%. Granted "deflation" in Japan has long been quoted as the key driver for the ongoing decline in real and nominal rates, but in practical market terms it was always the fact that there was a buyer of first and last resort, usually this being either Japanese citizens directly or their proxy, the Japanese Government Pension Investment Fund (GPIF) that kept yields in check and sliding.
and from SocGen's Dylan Grice 2010 views (full presentation here):
This is far from just a JGB market problem. As Japan's retirees age and run down their wealth, Japan's policymakers will be forced to sell assets, including US Treasuries currently worth $750bn, or Y70 trillion "eight months" worth of domestic financing. At nearly 10% of the outstanding US Treasury stock, this might well precipitate other government funding crises (bearing in mind that the Japanese model is the argument buttressing confidence in Western government bonds in the face of deteriorating fiscal conditions). At the very least I'd expect it to trigger an international bond market rout scary enough to spook all other asset classes.
And As Kyle Bass has questioned numerous times, will 2010 be the beginning of the end of flawed Keynesian economics?
Maybe Japan's will be the crisis that wakes up the rest of the world and triggers some tough decisions on world-wide debt loads. Or maybe not - maybe the Greeks will beat them to it? or the Irish or the UK, or the US? Like banks in 2007, developed market governments today rely on sustained capital markets more than any time in their history. What if they shut?
(h/t Brian)
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I was half joking. Actually I was pretty much joking but when it seemed there was a shot I could be right I left it alone so I could seem smart.
I'd like to thank you for your honesty!
Yes, they have to sell because there are more retirees coming on the books, and they have legally agreed to pay them their pensions. Not enough workers to fund the system as designed - standard problem, similar to our Social Security problem. However, you are wrong in your assumption that these retirees *need* this money to survive and cannot afford to reinvest in JGBs. Where's your evidence for that? Is this program means tested? Once again, my whole point was that the Japanese will do whatever it takes to ensure survival of the system. They will sacrifice, if required. Just because Kyle Bass makes the trade does not change the fact that it has destroyed many a speculator.
And really, if you take every thing that is posted on ZH as the word of God, you will be in trouble. I am a huge fan of this site, and Tyler (whomever that is) does a great job at finding news and providing excellent, humorous takes. But, there's a reason for the ? in the title. It's just a guess.
"Most Americans could care less about the system imploding, as long as they "got theirs" beforehand."
Not most, just the one percent.
Time to buy PMs Jappies. If you want to be happy, buy gold and silver Jappy.
Naa.....time for you to watch the Acropolis bulldozed and converted into a low cost Mercedes-Benz factory.
Bullish Yen?
Japan can't be far from going all Weimar Republic.
hmmmm....
now being a full fledged expert on macro economics, et al, having been following zh for sumpteen weeks...
let's see...as i recall...pboc set up some kinda chinese japanese paper exchange a few weeks ago. scared everybody about the dollar been losin its luster (get it? 'luster'). i suggested stupid move for the chinese then. now looks like they gonna munch a bunch of yen noodles.
trouble is, an hour after swallowing a trillion zillion or so, they're gonna be hungry for more. poor chinese.
poorer japanese.
people, that is.
patience ben. patience. they're all tumbling down the vortex of having not gone first in the print to win. ben of the prisoner's d went first. just please ben, don't go again. let the us of a win by losing the least.
I wish him the best of luck.
No big deal, all that money being liquidated from JGB's will simply travel somewhere else and create another bubble, maybe a new one in the Nikkei 225
Much of it will be consumed by the retirees that it belongs to.
You'd think they would have matched duration to their cash requirements. Oh well at least it's Mrs. Watanabe's money.
If Charles ponzi or old Bernie maddoff had the legal use of a printing press his " clients" would have all been "paid out" fully. In fact their various schemes might even be still running...
Getting paid is not the problem, preserving your purchasing power is.
The ponzi is designed to bleed you steadily without killing you. Your own greed, and hopes for the future are used to draw you like a moth to the flame to your own eventual demise.
Your financial dependence on the state is the goal, and our financial system is the mechanism by which you are enslaved and turned from a man into a mouse.
great comment.
While the mouse and most other mice stare at the flame, the money becomes worthless. But the value of real stuff stays the same. By design and publically acknowledged.
Bummer..you mean theyre not looking out for us?
Think someone needs a tar and feather history lesson. Followed by some other fun public humiliation. Followed by years and years of hard labor..as not to forget the value they intentionally destroyed.
Yen intervention seems imminent. It´s approaching a new multi-year high.
The largest holders are all net sellers. GPIF, the retirement fund needs to raise $110 billion for payouts this year (8.87 Trillion yen, as indicated above). Japan Post Holdings, the largest financial institution in the world ($3.5 trillion) and the largest holder of JGB's is trying to diversify their holdings and are also a net seller. The savings rate which used to be high is turning negative. The real problem is the demographics as Japan continues to age. The old people are very conservative and have a lot of bank deposits and insurance policies. The young people are mostly contract and do not make enough to save much. The retired are dissavers as the yield on their investments provides little or no income; therefore, they are withdrawing funds from the banks to live on or they are dying and being paid their insurance proceeds. This means that the banks and insurance companies are no longer growing and both will become net sellers of JGB's. The government is borrowing about 55% of total spending plus they need to issue at least $100 to $150 billion more in JGB's to cover those being sold by GPIF and Japan Post Holdings. At the very least with the government running a huge budget deficit and no new savings--they will run out of domestic buyers. Those big holders liquidating only make the problem worse. New issuance must cover the deficit plus the amount being liquidated by the big holders. It is only because of the BOJ buying and some inflow from Europe that yields have temporarily declined. The hand writing is on the wall in regards their cash needs. The banks hold about 25% of their assets in JGB's. The life insurance companies are also large holders but are having continually more payouts for death benefits.
The Japanese people are superior in many ways, but they are also screwed, which is unfortunate.
First, they are on a chain of islands with only a small amount of inhabitable land, and few naturally occurring resources. Their solution is to import a ton of oil and coal and build their cities vertically. But there's only so much of that people can take. Do you really want to live in a hole in a giant tower? And someday the flows of oil and coal are going to shut down. And they lost their military a long time ago, which means they can't acquire them by force.
I went to Japan several years ago and had a wonderful time, but I also noticed a few things. Japan is like a technologically advanced version of the 50s. The women are meek and don't do much but shopping. The men all look the same, and there's not much creative thinking...they just stick to an idea and do that really well, but they can't break away when things no longer work.
Also, for such an advanced people they have the oddest hobbies and interests. Porn is everywhere, and alot of them waste away their lives on Pachinko and arcades and video games.
And the young people seem to be going a bit crazy. Not insane, mind you, but just sort of dropping out. They don weird costumes and just sort of hang out and don't do anything. And they don't breed.
An interesting place but Japan is ripe for a fall. As part of the American sphere, they are dying because they've lost an independent culture. They might regain it someday.
A viable culture is the vaccine that defends against the Globalist Bankster Regieme.
In Thailand, the CFR is hard at work to get their Trojan Horse back in.
I agree with that assesment. Japanese do alot of shopping and drinking because that is pretty much all there is to do (big cities, small towns are a little bit different). You really have to plan in advance to go do something. No daylight savings time and long work hours means you dont have much time to do outdoor, extracurricular activities, hobbies etc. Many Japanese, esp women, consider sleeping, watching movies, shopping as hobbies.
I was wondering for the past 2 weeks as the rates dropped if he is still holding his position or did he maybe get forced out by this latest squeeze, is there a way to know what positions Mr. Bass holds?
This leaves the biggest question "to whom will the pension fund sell?"
To the government? They are forced to buy them after all... or are they?
If the Fed can print money left and right and buy 90% of the bonds with them as interest rates drop towards negative yields and convince us inflation is 1% then why can't japan just do the same? The polulation declines? Print money. There is some void that needs to be filled? Print money.
Any government must maintain the confidence of foreign holders to maintain the value of its currency. The amount of liquidity in Japan is huge. Their bank deposits are more than double those of the United States. Once they see that the value of their currency is falling; there will be an attempt to get money out of Japan. A weaker currency encourages inflation and then interest rates take off or the central bank raises interest rates to protect the currency. It is all related. Interest cost to the government is using up 25% of government revenue at a little over 1%. Let's say 5% interest on their debt would absorb 100% of Japanese government revenue. There is no easy answer to too much government debt. It is painful.
When oh when will pension funds in the usa stop being dumb money and become net sellers? It can't come soon enough. Gubbermint bonds are not the problem as they can just wait to maturity but all that stock market money is dead and gone. Unfortunately the dum fuks will keep buying stocks until the day they actually need the money probably ten or twenty years from now and then and only then will they figure out that it was all just a gigantic con job. Japan is the future.
Japanese 2013 budget :
Taxes : 42.3T yen
Budget : 90.3T yen
Deficit : 48T yen
GDP : 538T yen
Deficit to GDP : 9%
Realllllll sustainable...
The US has convinced everyone that it can be Japan. If Japan blows up....
It's not like they have tons of our debt they might need to unload or anything like that..
http://www.youtube.com/watch?v=zUeWPQHzycg
That 90.3T budget is an accounting trick. The Japanese always have a few "extra" spending appropriations through the year. It will probably be about 105 to 110T when it's all added up. The government is a disaster for the people.
Trying to wrap head around this... How will JPY be effected?
Say they happen to sell JGB's to external investors, this means people need to convert to JPY and by JGB's?
Basically, you would start the exodus from the banks and insurance companies to foreign assets as interest rates rose and they could see that literally all government revenues would be absorbed by interest expense.
The Japanese have a well-earned mystique based upon the many first-rate consumer products that they are able to manufacture and export.
But the Japanese are not infallible. Consider Fukushima, for example.
Their gigantic Ponzi scheme is absolutely magnificent and should be considered one of the financial wonders of the world. When it finally collapses and slides into the ocean it will generate a tsunami that will wash over the rest of the developed world and probably topple the other lesser Ponzis.
For example, when the Japanese government starts having problems selling its bonds it will probably start selling off the huge hoard of US government bonds that it has accumulated.
Japan blows up and the US can't be that far behind. A controlled explosion may become uncontrolled. Especially with printing accelerants like Bernanke, Yellen and Dudley. More paper to burn causes a hotter fire.
This is THE BIGGEST story circulating right now. The implications of more pension funds selling to meet redemptions are massive and should not be overlooked by anyone.
Of course they'll all say, "no one could have seen it coming!" That's because THE BIGGEST story circulating right now is the Dark Knight Slayer, and next week it will be something else equally distracting. Silly ostriches.
So what. More of the same shit. Helicopter Ben has the answer, yup.
All this crap will pass under the bridge for now. Give it until 2015 or aso.
Peak ponzi, Bitchez!
It's nothing but cliffs, black swans, and gnashing of teeth from here on out. Assume crash positions in 5, 4, 3, ...
The next crisis is here. Which are the creditors of the world now have a wave of inflation about to hit bond prices, who on earth would buy bonds now with the quality eroding rapidly. Bunds, USTs and even Gilts are crap. The only safe havens left are CAD bonds and AUD bonds, problem is the central banks there have artificially created safe haven/s, which will destroy them (slowing economies with housing bubbles and tight liquidity). So it's loose/loose.
If the bond bubble blows up, the global ecomomy will collapse. Inflation is about to kill the bond bubble. The FOMC meeting on the 31st/1st Aug will be one of the most watched meeting in a long time.
Meantime short squeeze is on and rally to the FOMC.
i wonder how a domestic stock market collapse would affect smaller US companies that have gone public, trading on the NASDAQ?
Kyle Bass is a financial Einstein. Watch this one closely.
I also heard a good one today: "What we are having is not a crisis in capitaliism, what we are having is a crisis in socialism." Very well put.
Now that takes the cake. Playing with words...Its a crisis in civilization, and its covering both flanks of the narrow divide, the left butt of Charybdis; aka statist overspending and the right butt of Oligarchy bubble-o-nomics, aka kleptocratic concentration of financial power by socialising the private debt to the government balance sheet.
So if you want to be Ulysses and sail between the two butts of overhanging civilization's hubris and debt leveraged consumption without any prospect of real growth, you better tie yourself to the mast if you don't want the sirens to pick you brains to pieces through the ongoing media hype! And stick to a straight course where you stay free man, not attracted to either of the two ideological cliffs that can smash you to smithereens.
Financial Einsteins will see their net worth fall in the meltdown; as its all fiat and even PMs will get hammered as nobody will eat gold or silver to survive!
Back in 1927 an American Socialist Norman Thomas, six times candidate for president on the socialist party ticket said the American people would never vote for a socialist. But he said under the name of Liberalism the American people would adopt every fragment of the socialist system.
Your Friend Ronald Reagan.
DEMO-CRAP DEMO-RAT solution:
do as US demoncrats (harry reid) do: just simply RAISE the retirement age to freaking 100 !! and THEN bail-out the greeks so that they can retire @ 45 !!! LOL !!
what's the problem?? YES YOU CAN !! ROFLMAO !!
Fraud bonds are worth more today than tomorrow.
Hurry up everyone out.
How is Kyle's MGIC Investment Corp (NYSE: MTG) trade working out?
You know, the one he pumped at $4 and thought it would go to $12? Oops.....
Today MTG is $1. NICE CALL KYLE!!! Bwahhhaaaaa!!!
Kyle is the man. Too bad he doesnt make the web blogishere once a month. Kyle, do you know how sorely missed you are? Kyle for fed chairman once Mitt, ect., ect., ect.
It's "Broflovski", not "Bass"
It will be interesting to see what happens when all the old Japanese die off and the population gets down to 80 million or so.
They are resilient f*ckers though, the US bombed them back to the stone age and yet they survived and thrived.
I wouldn't write them off.
just buy € before the end of the yen and $.
this is just like saying kill yourself by hanging rather than gun or self-immolation....
€ is at the very begining of its history (10 years old currency).
$ and yen are at the end of cycles.
no.
buy gold.
buy ammo.
live in a cave.
China’s stocks fell to the lowest level since March 2009 as speculation the government will maintain real-estate curbs overshadowed a State Council plan to develop the nation’s central provinces.
When I lived in Japan as a young, broke, backpacker two decades ago it cost me USD500 per month for a three tatami mat room which is about two metres by three metres. It was normal for Gaijing (foreigners) to live like that. That was while making USD2-5,000 per month. A lot of people lead a very simple spartan life in Japan. The basic idea is use the minimal space for living and eat and drink well and always save some of what you make.
sounds like young people's europe today! Only no savings as no work!
End Game - Bullish.
OT/ Now here is an ominously funny chart :
CHART OF THE DAY: The US Garbage Indicator Is Sending An Ominous Sign For The Economy - Business Insider
Bait for hooking the large-mouth bass:
http://www.businessinsider.com/japan-is-never-going-to-default-2012-5
The article you just linked by Weisenthal is based on flawed logic (its garbage). Bass hedges 1% of his book using assymetrical hedges with huge payouts (500/750 to 1). Author assumes that this is whole book and therefore Kyle Bass is down (what a moron this Wiesenthal takes us for). Well Kyle has long since closed out his greek bet (worked out nicely again it was JUST HIS HEDGE!!!) because all of the assymetry is gone and the bet got crowded. I bet the Japan assymetry is nearly gone by now. By the time the average sucker figures it out. he has moved on the next thing 8 months prior.
The article you just linked by Weisenthal is based on flawed logic (its garbage). Bass hedges 1% of his book using assymetrical hedges with huge payouts (500/750 to 1). Author assumes that this is whole book and therefore Kyle Bass is down (what a moron this Wiesenthal takes us for). Well Kyle has long since closed out his greek bet (worked out nicely again it was JUST HIS HEDGE!!!) because all of the assymetry is gone and the bet got crowded. I bet the Japan assymetry is nearly gone by now. By the time the average sucker figures it out. he has moved on the next thing 8 months prior.