Kyle
Bass of Hayman Capital Management is known for successfully betting against
the housing bubble, and was featured in the book Boomerang by Michael Lewis.
He also has done substantial, thought-provoking work on the sovereign
debt crisis facing Europe. In this video Bass covers the potential
timing, order, and magnitude of sovereign debt defaults in Europe. He
also discusses his view on the housing market, Japan sovereign debt problems,
and the U.S. dollar among other topics.
AC2011
Session 1.2 Come Undone: Kyle Bass redux
Some noteworthy quotes and points from the interview:
"Debt
has grown in the last 9 years at a 12% annual growth rate. GDP has
grown at 4% (annually). So what do you expect when you have a pillar of
the world community, the European Union, entering a prolonged stage of
deleveraging. The rest of the world in the absence of private credit
demand isn't going to grow."
"The
bottom line is the bill is due today. The bill is due in Europe today,
in Japan tomorrow, it's due in the U.S. the next day. And those days
are separated by years of course. And no one wants to admit it."
"For
those of you that think a 50 cent default on the private sector is going to
fix Greece, you've lost your mind. It is a full writedown of what the
Troika doesn't own....if you just do that math you'll realize it is a full
wipeout."
Bass
thinks December 19th is a critical date for the Greeks since they require
another tranche of money to finance their debts on that date.
"There's
a divide between reality and belief in Europe that is going to sink Europe
before we sink."
"We
haven't had a developed western sovereign restructure (it's debt) since
WWII....as soon as they do, you have to think about the qualitative analysis
of the participants changing. If it just changes on the margin, for
countries like Japan or Italy, then the dominoes start falling....I've never
seen an orderly default process, I think it's going to be a forest
fire....it's not the end of the world, it just means a lot of people are
going to lose a lot of money."
"What
this means is a very difficult time for the world. This is not a
cyclical rebound from a crisis we had two years ago and you should be buying
stocks because a P/E ratio is low comparatively speaking with the rest of the
S&P years. Because the E is wrong. And we're going to see
declines, and people don't know how to position themselves for
declines."
"If
you're an individual you need to be much more conservative then you even
think you need to be. Return of capital is much more important in the
next few years than return on capital."
"In
the environment we're talking about here, the U.S. dollar should be fine in
the short to medium term, if we're right about Europe and Japan....I think
you should be more in cash, and hanging onto productive assets and less
invested in financial assets."
Bass
says productive assets could still experience losses but they should provide
a better inflation hedge.
Bass
discusses why he took physical delivery of gold, and it had to do with the
fractional reserve nature of the COMEX. He alluded to the idea that the
COMEX wouldn't be able to handle a large request for gold delivery because
they only actually hold a small percentage of the gold traded on the exchange
in physical form.
"What's
going to happen in Europe is going to happen very soon."
Bass
thinks the 30-year bond rate in the U.S. could go lower than 2% if money
starts running to the U.S. during the upcoming European sovereign crisis.
Bass
doesn't believe collective participants in the market fully appreciate how
negatively the debt crisis will affect the markets.
"I
don't get paid to be an optimist or a pessimist, I get paid to be a realist.
Being a realist in this scenario is pretty negative."
"Don't
believe these governments, when they tell you that everything is going to be
fine....think about Mexico in 1994....if you remember the crisis, the day
before the government devalued 60% they said they wouldn't devalue. The
government can never tell you what they are about to do....the key takeaway
is develop your own opinion."
More Kyle Bass interviews:
Kyle
Bass BBC Interview
Debt
Sustainability: Which Countries Are Beyond The Point Of Return And Why
Where Is Value Now?
Kyle
Bass Explains Impending Greek Default
Kyle
Bass Interview
Kyle
Bass On European Banking Crisis
Kyle
Bass @ AmeriCatalyst 2010 | 'Confessions of a Dangerous Mind'
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