"When you let the politicians run monetary policy, well, that is how it [ends]... All of the ingredients are there [for Japan now] for this vicious cocktail to fall apart" is how Kyle Bass concludes this broad and succinct recent interview. With total credit market debt-to-GDP globally around 350% (or ~$200 trillion), his thesis remains that many countries will reach their profligate endpoint soon (if not already in Greece's case - where investors have already lost 90c on the dollar); but that managing around this current evolution is the single-hardest period for investing of the last few decades. The modest Texan notes it is naive to think he can call the end of a 70-year debt-super-cycle with any precision (as in mid-December's Japan fiscal data and Abe's election) but when you look at all of the inputs, he believes that Japan has crossed the proverbial Rubicon in the last two months and describes in this rather breathtaking clip how the end of twenty years of conjecture on what will happen to Japan will come to pass.
From his belief in the possibility of ongoing rate compression in developed nations and negative nominal yields in more than just Germany and Switzerland, Bass expounds on the structure of his fund (funding via low-duration 'high'-yield vehicles along with a long-short equity book and the core 'convex' Japan credit book) and how his template is playing out... must watch
and more detail in his recent letter to investors:
Kyle Bass