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 - 23:38 | 2446382 WallowaMountainMan
WallowaMountainMan's picture

"Just follow Reactor 4 for now"

Sun, 05/20/2012 - 14:15 | 2445407 Global Hunter
Global Hunter's picture

Maybe you can put my C.V. into your employer on my behalf I'd love to teach English in Japan for a few years and wander around in a drooling daze talking about how awesome Japan is.  You remind me of a lot of college educated 20 somethings who visit a far away land for an extended period of time and won't shut up about how awesome it is.  I'm a bit of a Mexico-phile myself however I am not under the illusion that Mexico equates to Zion.

Sun, 05/20/2012 - 14:30 | 2445447 Precious
Precious's picture

If I was Donald Trump and you were on the Apprentice, you would now be FIRED !

Sun, 05/20/2012 - 14:35 | 2445455 Global Hunter
Global Hunter's picture

I can play the bass and drums but I sing out of tune, so I guess I'd be thrown off American Idol too.

Sun, 05/20/2012 - 13:57 | 2445366 Not Too Important
Not Too Important's picture

How long can Japan continue to print, when the country is soon to be exterminated?

Trillions of becquerels per day. Forever, or at least another 10 years before every living thing on that island is dead. And us soon after that.

Very soon the yen won't be worth a grain of plutonium. Then the US West Coast, and all the farmland that's radioactive. Forget shorting the yen, how about shorting the US? Blythe is buying up the world's food supply for JPMorgan with all our tax dollars, but the food is contaminated.

Oh, that explains the increase in military spending. Eat your rad food or die, but don't complain!


Sun, 05/20/2012 - 14:09 | 2445398 Precious
Precious's picture

If you just want to say the sky is falling, then none of us have any reason to do anything but live for the present.  Is that your strategy?

Sun, 05/20/2012 - 14:01 | 2445381 FutureShock
FutureShock's picture

Wrong, Bass actually points out that the only solution is for them to allow immigrants to change the age of the population to increase revenue BUT that is is a huge culture issue that they would never got. You missed that lesson.

Sun, 05/20/2012 - 14:20 | 2445421 Precious
Precious's picture

Please explain to me how the age of a nation's population matters one bit a current world where the vast majority of profit margins are attributable to high technology content products.

Mon, 05/21/2012 - 00:35 | 2446466 o2sd
o2sd's picture

Old people cost more to keep alive.

Sun, 05/20/2012 - 14:18 | 2445411 Cosimo de Medici
Cosimo de Medici's picture

So that bell ringing they do every year on August 6th is just a coincidence, and not like what the Jewish people do to remember the Holocaust?  By the way, did Jews in 20th Century Europe invade someone so that their "lesser" suffering was somewhat justified?  No doubt many ZHers think so, but I can't seem to find this invasion in the history books, kind of like trying to find Nanjing in a Japanese school textbook.  How regrettable.

Japan certainly is productive, though, I'll grant you that.  And respectful of elders to a fault.  Why, now old people can even rent fake families to come visit and pretend they are the actual children who don't have the time or inclination to go visit.

Yes, we in the West just put all our old folks on iceflows and send them off to Valhalla.  I think it's Art Cashin's turn tomorrow.  No doubt in all the world, only Japanese value age.  And nobody worships youth.  That's why all the manga have salarymen making love to cougars and not pre-pubescent school girls in uniform.

By the way, are you back home in the West taking care of your elderly parents, or off worshipping somebody else supposedly do that in Japan?

Best to take your emotion and sentimentality out of the trade.


Sun, 05/20/2012 - 14:24 | 2445432 Precious
Precious's picture

I guess you're admitting that the Japanese limit the bell ringing to once a year in Japan only.

I'm not familiar with manga or video game content, or the rest of the stuff you mention, probably because it's not traded on the NYSE or NIKKEI to my knowledge.  But then again, maybe you know more about the pink sheets than most people.

Sun, 05/20/2012 - 14:19 | 2445413 Boeing Boy
Boeing Boy's picture

Japanese are xenophobes, which will ultimately become their undoing.  

Sun, 05/20/2012 - 14:43 | 2445434 Precious
Precious's picture

I guess it started when they were instructed by the British that for centuries they were doing the wrong thing by taking daily baths.

However, you can take comfort knowing, Boeing Boy, that the Japanese are constructing the most difficult carbon composite part of the Dreamliner and sending that part to American factories for final assembly and testing.

Sun, 05/20/2012 - 15:06 | 2445520 Whiner
Whiner's picture

Oh, tell me if I get it. The Japanese citizenry will retire that mega-debt load with stoicism? They will go bravely as slavws into that house of poverty.

Mon, 05/21/2012 - 00:10 | 2446439 ProtectiveFather
ProtectiveFather's picture

Japan's fall will be due to demographics, not poor work ethic or not valuing geriatrics.

Mon, 05/21/2012 - 07:18 | 2446804 hero HNL
hero HNL's picture

Most Westerners don't understand the Japanese psych & investing in Japan with a Western mindset can get you burned. Japan can sustain a large debt because the national govt has a lot of hidden assets such as 1st class property throughout major cities, huge ownership of private companies (such as NTT, JAL, JT, etc...), a highly educated workforce, export juggernaut, etc....It's like the US govt owning 50% of AAPL, GOOG, MSFT, etc...They also produce goods no one else can match regarding the quality & value. See how much military components & hardware come from Japan to the will be surprised.


I've seen too many stupid foreign companies coming here trying to do business the American way & getting screwed.....just amazed at the stupidity & arrogance of so many foreigners. It takes twice the workload & half the pay to really succeed in Japan. The level of capitalist competition in Western countries is too low compared to that of Japan. Just see how long people work everyday...a lot of time without pay.



Sun, 05/20/2012 - 13:10 | 2445266 francis_sawyer
francis_sawyer's picture

 "Ward, I think there's something wrong with the Beaver"

~ June Cleaver

Sun, 05/20/2012 - 13:55 | 2445359 robertocarlos
robertocarlos's picture

He hates the Canadians.

Sun, 05/20/2012 - 22:45 | 2446297 otto skorzeny
otto skorzeny's picture

I hunted many a beaver in my younger days

Sun, 05/20/2012 - 13:36 | 2445313 Freddie
Freddie's picture

Who is his dad?   Kyle was born in Miami and his dad was a manager at the Fountainbleau hotel on Miami Beach.  Sounds pretty middle class to me.  Kyle got a diving scholarship to go to TCU (Texas Christian University) in Fort Worth.  The Ft. Worth owned by the other Bass family.

TCU is not a bad school but if his old man was loaded then Kyle would have gone to an Ivy League school. He also did it on a sport scholarship.  Now if he came from a rich family - he would have went for an MBA after TCU but he didn't. If he were Sid, Perry or Ed Bass kid - they could have picked up the phone, wrote a check and he would be at Yale the next day.

Kyle got a job at a brokerage firm then went to Bear Stearns and moved up pretty quickly at a young age.  The guy is bright.  If his father was so rich - he would not be a manager at a hotel. 

Do some research first before posting a bunch of crap.

Sun, 05/20/2012 - 14:08 | 2445396 Oh regional Indian
Oh regional Indian's picture

Freddie, his dad wasn't "a manager" at the Fontainebleau, He Managed it.

Big difference. Managing the oldest historic landmark Hotel in Miami? Can you say Mafia, Drugs, Prostitution, Party Favours, Blackmail material a -plenty, skeletons in closets, favour doliing ability, political connections, women providing ability......are you 2 years old or just a blind worshipper? Sure guy seems bright and all, atheletically talented... the "other" bass family by the way.... no such thing.

Anyways, so no, when you grow up with your father managing the largest, most historic hotel property in Miami, you grow up amongst Gangsters, film stars, sprots stars, intrigue, sex, power... and then on to the Dallas Convention think the guy that manages let's say the Giant's stadium in San Francisco has a few "connections" are not growing up average. Plus you live in the place. Palace. Whatever.

I'll stick to my "insider, deep insider" stance.


Sun, 05/20/2012 - 14:19 | 2445416 Freddie
Freddie's picture

If his old man was so connected then why did he go to TCU on a diving scholarship?  TCU is not a terrible school but it is second tier.  It just mad ethe Top 100 in 2011 in US News and World Reports college rankings.  When Kyle was there it was probably ranked much lower.

If his old man was so rich and connected then he would have gotten him into U of Texas at Austin or an Ivy school.  He probably even commuted from home because his dad worked in Dallas.

He probably had some connections but his analysis of events, the network he has of other money managers has done some of the best research on the subject. He also was smart enough to tell U of Texas endowment to buy gold and take delivery.   

Sun, 05/20/2012 - 20:28 | 2446070 Eireann go Brach
Eireann go Brach's picture

ORI you are just full of shit and are jealous of Bass, and you would love even 1% of the wealth this guy has!

Sun, 05/20/2012 - 20:44 | 2446096 tarsubil
tarsubil's picture

Yeah! Fucking beaver murderer!

Mon, 05/21/2012 - 00:17 | 2446452 Oh regional Indian
Oh regional Indian's picture

The subtlety of his beaver killign ways is obviously lost on you tar.


Tue, 08/28/2012 - 06:30 | 2742986 kall
kall's picture

That's a good point. I'd be tempted to ask this question to the Cohen Asset, at least they know what they are doing. I am just amazed how things are turning in our economy.

Sun, 05/20/2012 - 10:32 | 2445016 Hulk
Hulk's picture

Had God followed frogs, flies and gnats up with chiggers, I think he could have skipped the rest...

Sun, 05/20/2012 - 10:34 | 2445017 overbet
overbet's picture

Bass is brilliant but I am personally staying away from any trade named the widow maker.

Sun, 05/20/2012 - 12:02 | 2445152 mcguire
mcguire's picture

another question is this: if the trade does become a "winner", what will the rest of the world look like?  greek impact on the global economy has been huge, and japan will be even more, i would presume.  if this trade is profitable, "global reset" is right around the corner, so you would have to take your profits very quickly and turn them into non-monetary holdings.. 

Sun, 05/20/2012 - 12:03 | 2445155 malikai
malikai's picture

History is littered with the skeletons of JGB shorts.

Sun, 05/20/2012 - 12:27 | 2445192 Thomas
Thomas's picture

Here is a funny line in the case study:

"This was the first time the deficit would exceed the tax revenues."

As I reread that, I realized that it was saying the revenues payed less than 50% of the tab.

Sun, 05/20/2012 - 18:12 | 2445868 Fluffybunny
Fluffybunny's picture

No shit

Sun, 05/20/2012 - 13:17 | 2445284 smb12321
smb12321's picture

I am staying away for a different reason.  I know he is correct, but I cannot afford to lose 60% on a trade for years before recouping it.  I saw an hour interview with Bass who was great!   He defended his positions, explained the Japanese trade (this was over a year ago) and his reasoning behind his decions.  And this was in the face of a very antagonistic "interviewer" who seemed riled that he had made money on a market call. 

Sun, 05/20/2012 - 10:42 | 2445029 Future Tense
Future Tense's picture

What's insane to think about is that a country like Japan or America has their savings account backstopped by the government which are only backstopped by the debt markets. The following articles talks about what backstops American savings, the strength of the FDIC's artificial promises:


Sun, 05/20/2012 - 09:55 | 2444949 Motorhead
Motorhead's picture

How Kyle Bass kept his cool when that kurva from the BBC was interviewing (interrogating) him a few months ago, I'll never know.

Sun, 05/20/2012 - 10:04 | 2444972 Manthong
Manthong's picture

I think Kyle is right.

The teeny problem with his bet paying off is that it means lights out for just about everything.

Big difference between a little Greece spot and the world's (now) third largest economy.

Sun, 05/20/2012 - 10:22 | 2444986 DormRoom
DormRoom's picture

yup.  The Western world is 'japanifying'.  Basically, the are adding stimulus to economies saturated with overindebtedness, malinvestment, and poor resource reallocation.  The economies need to purge away the businesses that would undoubtedly fail, if we weren't in a ZIRP,  and QEx enviroment.  It it these companies that are misallocating capital & resources away from creative enterprises.  But dong so would imply a huge political shift,  last witnessed in the 30s.  Instead the powers that be would rather have a few 'lost decades', since the elites still prosper in such a macro-environment, while the 99% get screwed.


If Japan fails, it will support the case that ZIRP & QEx are not the proper policies in the long run.  Rather it clearly shows how it's a kicking the can down the road strategy, until the can turns out to be an unmovable oil drum.


The western economies are zombie economies, where the marginal utility of stimulus is diminishing.  And flow is used to prop up unsustainable enterprises.

tl;dr:  Western economies are like a bucket riddled with holes.  Instead of getting a new bucket (Ron Paul like change), the Fed helps the owner (crony capitalists) to fill the bucket whenever the water drains out, emptying the bucket.  It's unsustainable.  As will be shown with Japan imploding.

Sun, 05/20/2012 - 10:21 | 2444999 FEDbuster
FEDbuster's picture

I would find it hard to bet against any government with the ability to freely print.  Printing will eventually fail (as it will here, too), but it amazes me how long the debasement can last. Most of the time it takes decades, and sometimes centuries.  I guess I don't have a long enough time frame like Kyle?  Short term protection against printing is gold, which I know Kyle has plenty of, too.  On a more basic survival level, you can't go wrong investing in some long term storage food, water filters, etc....  If the SHTF like Kyle thinks it will, the housing crash was just an opening act to the main event.

Sun, 05/20/2012 - 11:32 | 2445108 Vince Clortho
Vince Clortho's picture


Sun, 05/20/2012 - 23:57 | 2446414 FEDbuster
FEDbuster's picture

Eventually Zimbabwe, but could take a while.

Sun, 05/20/2012 - 11:06 | 2445073 Marginal Call
Marginal Call's picture

The market can stay irrational longer than you can stay solvent.  Bass is right, and early.


Maybe the market will figure it out if they start evacuating Tokyo, but until then metal is the only safe bet against the printers.

Sun, 05/20/2012 - 11:37 | 2445119 oldman
oldman's picture



You can bet we will be the last to know if Tokyo is to be evacuated. It may be that this has already begun informally and that is the reason for so much support quietly going to Japan under the heading of declining population/pensioncosts unsustainable. I don't know that this is the case, but I do know that the public will be told after the fact.

Perhaps, Japan is the experiment in progress to see how the world will be with fewer people and, consequently, permanent deflation. A whole new school of economics coming, methinks.

The markets are not irrational; only the players-------how long? Well, how long have we been cheering for war?

Thanks           om

Sun, 05/20/2012 - 21:05 | 2446120 tarsubil
tarsubil's picture

Yeah, there's that rope tied to Europe and the US. Some think it won't matter when Japan falls off the cliff, but that rope is there.

Sun, 05/20/2012 - 10:21 | 2444998 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

I admit I had a small portion of my portfolio with haymen capital during the subprime collapse, but I pulled it since kyle started going after sovereign nations which he has absolutely no right to do. we need to regulate these bandits before its too late.

Sun, 05/20/2012 - 13:20 | 2445288 Victorio
Victorio's picture

you're either a shitty real troll or a great sarc troll. which is it?


Sun, 05/20/2012 - 13:03 | 2445254 azusgm
azusgm's picture

He could afford to keep his cool. The trick was to remember that one day she would probably have to interview Hugh Hendry.

Sun, 05/20/2012 - 13:19 | 2445286 smb12321
smb12321's picture

That was a FABULOUS interview.  He came across as cool, witty,self-deprecating and the "interrogator" looked immature and petty.   Bass says what he thinks, explains why he reached that decisions then stops.  He doesn't try to persuade naysayers that he is correct (he is not an ideologue) but simply makes his case.

Sun, 05/20/2012 - 09:56 | 2444950 bank guy in Brussels
bank guy in Brussels's picture

Harvard Business School ...

George Bush got an MBA there ...

Its graduates have helped destroy the global financial system ...

Decades ago, Robert Townsend who saved Avis and wrote a popular business book 'Up the Organization', said in that book:

Never hire a graduate of Harvard Business School

Sun, 05/20/2012 - 10:16 | 2444988 insanelysane
insanelysane's picture

Harvard isn't about supplying an education it is about making connections so you can play in a rigged world.  There is not an original thought on that campus.  When was the last time you heard of some cutting edge breakthough in any field coming from Cambridge? 

Sun, 05/20/2012 - 10:56 | 2445051 I am a Man I am...
I am a Man I am Forty's picture

except for those twins who invented facebook

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