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Presenting The "Kyle Bass" Harvard Business School Case Study

Tyler Durden's picture


How does one get a Harvard Business School case study made after them? Why by being constantly ahead of the curve, with the right trade, and being mocked by the same "access journalism and excel free" mainstream media which pushed subprime toxic grenades to anyone who listened, only to be proven correct time after time. In other words, by being Kyle Bass: the same Kyle Bass who lost money month after month on his Subprime short (full slide deck here), only to see it all made back, and then  some... quite a bit of some. Because it is not by following the herd that one makes the killer trades: it is by standing against it and by waiting for conventional wisdom (in this case that Japan's debt load is somehow sustainable - it isn't, but the kneejerk response still is one to treat JGB's as a flight to safety - this only works until it no longer does and the same math that had doomed the euro over a decade ago is finally grasped by all). Yes: he has lost 60% on his Japanese short fund since inception: so what? All it takes is one millisecond of Malcom Gladwellian insight and the formerly offerless market goes bidless. And that -60% is transformed to +XXXX.YY. Perhaps once the market takes long, hard look at the underlying reality of what the chart below implies, and that unlike in the US, where two-thirds of all financial liabilities are mopped up by the shadow banking system which provides an unregulated inflation buffer (there is a reason why the European bank system is 3x bigger than the US - the balance is made up of the 100% unregulated shadow banking liabilities most of which are held off the books!), Japan just does not have one.

(As a total tangent, we are always fascinated when "pundits" come up with "economic" theories explaining what they have absolutely no understanding of: namely the subversive role of shadow banking with its $20 trillion in assets which allows infinite asset rehypothecation, which more than any other three letter economic theory that has no bearing in practical reality, is the sole reason why Treasurys are a Giffen good... for now.)

Either way, below is the complete Harvard Business School presentation on Kyle Bass, on Heyman Capital and on the Japan Short ber, which we hope will put to rest some of the prevalent disinformation floating around.



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Sun, 05/20/2012 - 11:23 | 2445092 oldman
oldman's picture

I remember that during the heigth of the stock bubble we understood that the US was insisting that Japan change the structure of its banking system to provide more 'transparency'. The BOJ had historically played god to the Japanese economy by 'arbitrarily' directing flow from overheated areas to those needing capital, and this just wasn't what the US wanted to see in a 'democratic' nation.

The discussion in the firm where I worked was among 'oldtimers', then in their 70's who mainly argued against changing the policy which had worked so well for so long. In the end, however, the attempt was made by the BOJ and things changed abruptly and as a result it seemed that the Japan just imploded. The dislocation was explained to have been the result of the imposition of globalist's values and needs upon Japan, and the Japanese were 'too slow' to catch on.

After reading the above regarding the history of those 'times', I wonder if, perhaps, I have not 'dreamed' what I wrote above. 

Does anyone out there remember anything about this or the changes I refer to? I am just getting too old to depend upon my memory anymore      om                                                 

Sun, 05/20/2012 - 11:53 | 2445141 Winston Smith 2009
Winston Smith 2009's picture

Do a Google search for Kyle Bass Japan, then read and watch.  He lays it all out clearly. 

Here's a good one, but it's not all about Japan and doesn't cover all he has written about and said in interviews about the subject:

Sun, 05/20/2012 - 12:35 | 2445211 slewie the pi-rat
slewie the pi-rat's picture

b/c of the "official" story often being a cover for some event, activity, special interest or cabal, much of "economic history" is actually remembered personally as dissonance

if you are sitting at a computer, o_man, just search for the info you want since you seem to know the time frame but did not say explicitly

everything you may have "forgotten" is online, so refresh your memory and quit BiChin!  it is hard to remember back a ways, especially if things never really varied much, locally, and the "official" version does not "reinforce" your personal version, or you didn't work up a mnemonic link-up for yourself

open a "compose mail" and start checking links and pasting stuff till you get back in touch with what happened for you

when this comes up, again, you won't sound like you've soiled your fuking diapers, ok?

i remember stuff wrong or "differently" all the time.  what year WAS that?  [especially around nixon/kissenger/china and a few other places]  last year, i could see the planes flying in while i was out riding my bike, but i could NOT remember "bohemianGrove" for months (they have aSpring session too, ya know);  i knew what was happening, i could visualize the location;  i knew how to get there, but i could not "recall" those words for months, om!  i musta looked it up 5 X!  then it would get "blocked" again

i was "using it" and still "losing it" L0L!!!

now, i can "access" it again (til the next time?) you can too, lazybones!  see ya!

Sun, 05/20/2012 - 13:40 | 2445326 Mary Wilbur
Mary Wilbur's picture

Good advice for me too. Thanks Stewie.

Sun, 05/20/2012 - 15:48 | 2445620 slewie the pi-rat
slewie the pi-rat's picture

getting old isn't all freebies and handing the grandchildren back on the way to the slots and bingo

luckily, we still have our bongs, mary!

Sun, 05/20/2012 - 19:45 | 2446001 oldman
oldman's picture


thanks, pi-rat and good call. I am lazy. I was just hoping that someone here might remember something as vague as this, but i'll look it up.


Sun, 05/20/2012 - 19:51 | 2446002 oldman
oldman's picture


Sun, 05/20/2012 - 11:32 | 2445109 thetaste
thetaste's picture

Yeah, I wouldn't invest with Kyle on this JGB trade. Technically, he's got it right, but he fails to understand the Japanese. Japan is not America. When Japan is in trouble they close ranks. I mean who would send their kids of the crash planes into American carriers...The Japanese would. Would you? NO you wouldn't. What do you think capital would mean to them during a crisis. When the kamikazes come out, then this trade makes sense.

Sun, 05/20/2012 - 11:45 | 2445127 Winston Smith 2009
Winston Smith 2009's picture

"Closing ranks" will do them absolutely no good in this case.  As a matter of fact, "closing ranks" is a significant part of what got them into this mess.

You need to research Kyle's arguments.  They are sound.  As in Europe, reality will eventually be FORCED by the bond markets.  When that is exactly no one can say and only big players like Kyle can afford to continue to bet on it.

Sun, 05/20/2012 - 11:54 | 2445144 thetaste
thetaste's picture

  As a matter of fact, "closing ranks" is a significant part of what got them into this mess.

100% agrement on that.

You need to research Kyle's arguments.

Will do. I only caught his arguements on video

big players like Kyle can afford to continue to bet on it.

Unfortunately, I can't. I live here so I have to make decisions, based upon how I see things. 

That being said. I like Kyle and agree with him(in the long run). I just want to say that this one is going to test him.

Sun, 05/20/2012 - 11:46 | 2445124 Winston Smith 2009
Winston Smith 2009's picture

Another thing I don't like about Business Insider besides Weasenthal and Blodget's bad analysis is their "Featured Comments" section at the very bottom of an article, above all other reader comments.  They are always ones praising the particular article even when, as usual, the vast majority of comments and their thumbs ups reader votes are valid criticisms of the article.  Yet more evidence of the level of journalistic "standards and ethics" at BI.

Sun, 05/20/2012 - 12:13 | 2445171 I am Jobe
I am Jobe's picture

Havard- A place for Inbred fuckers. Shut the Ivy Leagues down.

Sun, 05/20/2012 - 12:26 | 2445188 falak pema
falak pema's picture

why? let them inbreed and die in loving gang banged oblivion like the world began.Big Bang and Ivy becomes poisoned! 

Sun, 05/20/2012 - 13:06 | 2445261 Sandmann
Sandmann's picture

Harvard Business School is the least Ivy League of any Harvard Grad School....but never mind, what do you know ?

Sun, 05/20/2012 - 16:27 | 2445677 Tom Green Swedish
Tom Green Swedish's picture

Really.  Since when has anybody trusted someone from Harvard.  I have a degree from Devry and I showed up a guy with a degree from Harvard in real life.

Sun, 05/20/2012 - 23:58 | 2446416 Sandmann
Sandmann's picture

What is Devry ?

Sun, 05/20/2012 - 12:27 | 2445187 falak pema
falak pema's picture

if you have to choose between sea bass and sea bream, turbot or red mullet, sole and sword fish, tuna and hake, I would choose the emperor a fish of south seas, indian ocean. Also called Napoleon or angel fish as it has a huge head, it really is delicious. The japs, who love fish,  would love it just like they would love to eat grilled Sea Bass!

Good luck with that! Kyle does rhyme with Keel ...Kyle hauled! 

Sun, 05/20/2012 - 13:08 | 2445262 INMUDEELZIZ
Sun, 05/20/2012 - 13:17 | 2445282 chinaguy
chinaguy's picture

No mention (at all) of the Plaza Accord (the Massive global CB intervention) which was one of of (if not the largest) driver of Japan's deflated currency...makes the whole analysis a little iffy, for me anyway.

... and for fucks sake, of course Japan is going down w/ its demographics profile and unsustainable debt burden.  A blind monkey could see that, but when, when? Bass doesn't answer that & hasn't timed it right yet.


Sun, 05/20/2012 - 13:19 | 2445285 Sun Tsu
Sun Tsu's picture

A Magnitude 10 Earthquake is a remote possibility most places, other than the east coast of Japan.  

-who wouldn't rather be lucky than smart?

Mon, 05/21/2012 - 00:27 | 2446458 HungrySeagull
HungrySeagull's picture

That will have planetary implications....

Sun, 05/20/2012 - 13:27 | 2445300 Global Hunter
Global Hunter's picture

Has Mrs Wantanabe read this post?

Sun, 05/20/2012 - 14:32 | 2445449 packman
packman's picture

OK - got a question on the chart.  Why is Japan's sovereign debt shown as 1900% of revenue?

2011 debt: $12.15 trillion

2011 revenue: $1.86 trillion

debt/revenue = 653%

Bad math, or am I missing something?



Sun, 05/20/2012 - 15:16 | 2445545 thorgodofthunder
thorgodofthunder's picture

Mods- the racist perpetuates his hatred. Why condone by allowing his membership?

Your comments are de facto racist and anti-semetic. It is pure evil to incite racial hatred against Jewish people or any religion.

Deflection of truth is no counterpoint to fact racist. You really should be in jail for your hate crimes. Hold your head in shame coward.

Sun, 05/20/2012 - 15:45 | 2445610 Atomizer
Atomizer's picture

You my friend are the ones who are running scared. As the days go by, your metrics will be divided between empty fears and the edge of a high cliff. Good luck!

Sun, 05/20/2012 - 15:21 | 2445560 Stock Tips Inve...
Stock Tips Investment's picture

The storm is just beginning and do not know how long it will last or how strong will be its intensity. All we know is that there is a storm approaching. It is difficult to draw conclusions at this time. However, I think there are different ways and less controversialto win a lot of money in these circumstances.

Sun, 05/20/2012 - 15:38 | 2445599 reTARD
reTARD's picture

Fundamentally, Kyle Bass is probably right. However, like Meredith Whitney, their issue is with trying to time the collapse. It's like trying to predict earthquakes while knowing that they are inevitable but preparing too early.

Sure the Japanese may be able to endure more sacrifice than others but in an unsustainable system everyone eventually breaks. The Harvard article references examples of Japanese curtailing their use of elevators, lights, and air conditioners with Toyota workers assembling cars at 84 degrees F through the summer. Sure people can and are sacrificing, for now. But as the unsustainable system spirals downward and asks more and more of people, the real questions are how much more can people sacrifice and when do they break?

The other key factor is market manipulation from corporations to governments to central banks. Corporations channel stuff, operate under funny accounting, pump and dump their stocks, steal their clients' segregated accounts and bet against their clients investments among many other things. Governments use regulations and taxes to hurt or eliminate small/new competitors for their big corporate friends, tariffs and price controls against international competitors, funny accounting via discretionary spending and unfunded liabilities, mis-education via government schools or forced curricula among many other things. Central banks use inflation via money printing ("expanding their balance sheet") and changing reserve ratios, price fixing via interest rate changes, and twisting and shouting propaganda among many other things.

Markets (manipulated or not) usually act irrational (even for a long time) before then finally act rational. People get paid ridiculous amounts of money to make "educated" guesses often only to end up wrong with their timing.

Sun, 05/20/2012 - 15:56 | 2445631 ouchtouch
ouchtouch's picture

Wish there were a way for a small investor to get in on the action without becoming an unsecured creditor of DB.

Sun, 05/20/2012 - 22:49 | 2446304 otto skorzeny
otto skorzeny's picture

JGBS-check it out

Sun, 05/20/2012 - 16:16 | 2445665 Tom Green Swedish
Tom Green Swedish's picture

You have got to be kidding me with this Graph.  Would you rather be in Japan or India or Turkey.  I would honestly prefer a life in Tokyo. Japan has the most expensive cities to live in the world.  It can cost 48 dollars for a lunch.  This is laughable.  These fund managers forget one thing when they are looking at all these charts.  REALITY.

Sun, 05/20/2012 - 17:50 | 2445841 emersonreturn
emersonreturn's picture

swedish, $48 for a lunch...if this is an ordinary ho hum box, doesn't that tells us most cities in NA you can grab a ho hum box for $10 to 15.  my ex-son-in-law sells his high end leather and jewelry in japan and it's almost entirely under the table.  i don't know, tough choice--india or turkey...turkey's got gold and the food's great.  india while the culture and food are fabulous...pakistan is a problem.

Sun, 05/20/2012 - 20:05 | 2446033 billsykes
billsykes's picture

Ok so I like bass but what if his trade did work, if it is concentrated in real estate- so it goes down, is there any silly government fingers in Jap real estate like usa's fanny freddy?

If it did have a govermental/GDP impact would it trigger selling of some the US treasuries that Japan holds, bringing down the dollar. 

Think about the model (financial) you would need for a play like this to price the risk in.

Sun, 05/20/2012 - 21:30 | 2446150 WallowaMountainMan
WallowaMountainMan's picture

"Giffen good...'

from wikipedia:

"Evidence for the existence of Giffen goods has generally been limited."

wiki shoud read zh.

ty for the great highlightrightclick it excursion to the Giffen good.

Sun, 05/20/2012 - 22:23 | 2446254 silverdragon
silverdragon's picture

Unless someone has made more money than Bass, why would they presume to know more than him and question his trade?


Sun, 05/20/2012 - 22:46 | 2446270 WallowaMountainMan
WallowaMountainMan's picture




Sun, 05/20/2012 - 23:22 | 2446351 silverdragon
silverdragon's picture

How does anyone criticize a man who hunts beaver with such dedication?

Mon, 05/21/2012 - 04:35 | 2446568 silverdragon
silverdragon's picture

How does anyone criticize someone who is that passionate about beaver?

Mon, 05/21/2012 - 03:17 | 2446603 Mario55
Mario55's picture

ZH, Great article! Thank you

Mon, 05/21/2012 - 07:36 | 2446843 EmileLargo
EmileLargo's picture

How much did his fund lose in "paper value" when "shorting" sub-prime (before generating outstanding returns later)? A lot will depend on how his investors see it. While I agree that the trade is right, you don't want to over-expose yourself lest this situation not unravel fast enough. Market sentiment and "myths" about safety can be very durable things as we are finding out. We have scared money running to the US and Japan right now. How long that goes on for, who knows?

Bass is sharp enough and wily enough to know that you must not take too large a position and lose staying power. Which is why I am surprised at this. But if his investors stay the course on the basis that the returns will be good, then he may make an even bigger killing afterwards. If they pull out, he may have missed the opportunity of a lifetime.

Wed, 05/23/2012 - 08:03 | 2454322 i.pagnottella
i.pagnottella's picture

The document has been taken off scribed, and I hadn't finished reading it, has anyone downloaded it? what is the point of doing a study and not sharing the knowledge? 

Sun, 05/27/2012 - 14:21 | 2467378 Precious
Precious's picture

It's on a roll of paper .... attached to the outhouse door, where it belongs.

Do NOT follow this link or you will be banned from the site!