Global Debt Bomb
Kyle Bass has bet the house against Japan--his own house, that is. The Dallas, Texas hedge fund manager (no relation to the famous Bass family of Fort Worth) is so convinced the Japanese government's profligate spending will drive the nation to the brink of default that he financed his home with a five-year loan denominated in yen, which he hopes will be cheaper to pay back than dollars. Through his hedge fund, Hayman Advisors, Bass has also bought $6 million worth of securities that will jump in value if interest rates on ten-year Japanese government bonds, currently a minuscule 1.3%, rise to something more like ten-year Treasuries in the U.S. (a recent 3.4%). A former Bear Stearns trader, Bass turned $110 million into $700 million by betting against subprime debt in 2006. "Japan is the most asymmetric opportunity I have ever seen," he says, "way better than subprime."
Bass could be wrong on Japan. The world's second-largest economy has defied skeptics for so long that experienced traders call betting against it "the widowmaker." But he may be right on the bigger picture. If 2008 was the year of the subprime meltdown, 2010, he thinks, will be the year entire nations start going broke.
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Most investors seem to believe, as the late Citibank chairman Walter Wriston put it, that "countries don't go bust." The opposite is true. "There was a massive default wave in 1980s and 1990s," says Reinhart. Investors may not have paid much attention since the defaults were mostly in emerging market countries like Guatemala and Romania. But the deadbeats included current investor favorites like Brazil, which defaulted in 1983, went through a bout of hyperinflation in 1990 and effectively defaulted again, for the same reason, in 2000. Reinhart and Rogoff show that, on average, nations add 86% to their debt loads within three years of a credit crisis. At the same time government revenue falls an average of 2% in the second year after the onset of the troubles (see timeline).
- Kyle Bass: The Looming Crises In Asia
Link to: Kyle Bass: The Looming Crises in Asia For the last several years, nobody has been more outspokenly bearish on Japan than Kyle Bass. In a recent talk, Bass reiterated his doubts about Japan’s chances of averting a debt crisis. What’s...
- Kyle Bass On Bloomberg (video)
April 9 (Bloomberg) -- J. Kyle Bass, head of Dallas-based hedge fund Hayman Advisors LP, talks about the outlook for Japanese government bonds, gold, and the U.S. housing market. Bass, speaking with Erik Schatzker and Stephhanie Ruhle on Bloomberg Television's...
- Doom Heralded At Hayman By Widening Trade Deficit: Japan Credit
Thanks to Will for passing this along. Going back and reviewing an investor letterfrom Kyle Bass dated November 30, 2011, Bass wrote “We believe that Japan would have a bond crisis of its own within the next two years without the current European debt...
- Big Long Is New Big Short As Bass Joins Subprime Bet
Investors who made some of the biggest profits from the 2007 bust in U.S. mortgages are once again in agreement. This time, they’re going long. Hedge fund manager Kyle Bass, who made $500 million betting against subprime debt in the crash, is raising...
- Michael Lewis Interview
I want to ask you about your experience as a financial writer. I will start with your most recent book, Boomerang, and then move to some more general questions.Did your interview in Boomerang of Kyle Bass, the founder of Hayman Capital Management in Dallas...