Sunday, November 20, 2011

HOT: Why Japan is Going to Go the Way of Greece

I featured Kyle Bass on Friday because of his purchase of one million dollars in nickels.

He also recently spoke to the BBC about his investment views and where he thinks the world is heading. This is a 30 minute video, but you should find the time to view it. Bass is the real deal and understands exactly what is going on in the world. My only caveat is that he views the eurozone crisis ending by way of government restructurings. This may indeed be the case, but he ignores the possibility that the eurozone officials, especially those in Germany, may buckle and give the go ahead to the European Central Bank to start printing eruos in huge quantities. So while restructuring, aka bankruptcy, is a possibility, very strong inflation is also a possibility

That said, this is a must view, extremely insightful overview of the current financial situation globally.


  1. 1. This is why we hear so much propaganda about the alleged evilness and destructiveness of hedge fund managers. It is these people more than any other that put the most discipline on government profligacy and destructiveness. Statist demagogues try to paint derivatives trading, hedging, "betting against society", as the reason why the financial system collapsed, so that they can deflect attention away from the actual destroyers of society, namely themselves.

    2. Does this mean that something comparable to Greek CDS 2008 can be made for Japanese CDS today?

    I'm not sure, because CDSs only pay off when the counterparty is solvent. AIG got bailed out so counter-party solvency was not as big an issue in the US. But how can we know that a Japanese CDS counter-party will be an AIG and not, say, a Lehman Bros.?

    3. That interviewer was terrible. She tried to blame Bass for causing government created problems, as if governments cannot crash economies and nothing they do is destructive. She probably got mad after she considered the lost possibility of making $700,000 on $1,000 on CDS.

    4. "Buying gold is just buying a put against the idiocy of the political cycle."

    No truer words.

  2. A fantastic video...thanks RW...

  3. Great video. She seemed pretty determined to make him look like a villain.

  4. Wow. He does a phenomenal job in keeping his cool and explaining his views in the face of some extraordinary hostility from the host. She was out to tar and feather him as an evil Capitalist Profiteer but he just wouldn't let her do it. His integrity and intelligence shone straight through her smear tactics. Very very well done. Thank you for passing this along, Robert.

  5. Check out his interview with this socialist runt.....

  6. OK - how does someone without a lot of cash (me) and a lot of experience in this area (me) place a bet like this guy suggests - on Japan? I'm willing to bet 10% of my savings that this guy is right.

  7. They try to smear the people that make money because they see what is happening in the world. That is like saying Steve Jobs was evil because he saw a market for ipads. Blame the one that caused the war, not the one that made money by manufacturing guns.

    I love his comment where he said:
    "You know Europe is screwed up when they have a German Pope and an Italian central banker."

  8. @ Anon. 11:46 AM
    Didn't understand most of that video you linked to because it wasn't in English, but I heard Mr. Bass's comments. The best one:

    "If command and control economies worked, we'd all be speaking Russian."

  9. Great call on median incomes vs median home prices. I saw this first hand when living is San Diego between 2002 and 2006 (and, in Los Angeles from then until the bust). I literally watched a great many lower-ranking enlisted folks (E-4 and below) use their VA loan (zero down payment) to buy $600k homes which were in need of maintenance, where relatively small and had no actual property to speak of. Considering that the take-home pay that I received as an E5 with 4 years in, 2.5 years of sea duty (sea pay), 2 deployments to 5th fleet (which means zero tax), etc was around $43,000, it was quite obvious that incomes were well below home prices (plus, I could rent at half the cost). Trust me, I saw this outside the military, as well. It was complete lunacy.

    Another great call on pointing out Germany's problems. I have been pointing this out to people over the past year or two, because people simply repeat what they hear on TV and believe Germany is doing so well (or, they use Germany as the mixed economy ideal). Their debt-GDP- is rough and they have consistently had high unemployment over the past 10 years. Sure, Germany is one of the better economies in EZ, but that doesn't mean that they're in great shape... Not by a long shot. Plus, have you ever checked out how much German products cost in western countries outside of the EZ?

    It is hilarious that she is trying to portray him as some evil man. His job is to protect the investments of his clients, so if you get a chance to hedge the rest of your investments at a mere 1%, and it is pretty clear that most of the assets that banks hold are many multiples of GDP and those assets are doomed to fail, you take the freaking hedge. Smart move. It's pretty clear that he was annoyed throughout the entire interview, as if he was thinking, "excuse me, miss. But, are you just a complete idiot or are you just trying to smear me?"

  10. Here is a quite telling quote: "only the US and UK have recapped their banks, the rest of Europe hasn't recapitalized anything"

    The entire reason that banks were undercapitalized was because of the bailouts. When you take assets off of their books and give them dollars, then they merely have a crap-ton of liquidity with no capitalization. As I pointed out about a year ago on Murphy's blog, the banks were recapitalizing slowly primarily by moving Treasuries and equities. Now, they are recapped and can lend all of those trillions of liquidity, though it would be interesting to see what exactly they're recapped with. I think that the UK is a little ahead of the US in this respect (though, I may be wrong).

    I also loved that he points out that merely 100 basis points or so is quite enough to collapse most western government's ability to service the interest payments, let alone the principle. When you're in this situation you already know that money is going to be printed in greater amounts to influence interest rates (downward) and to service the (government) debts.

    I think that it is hilarious that the interviewer sees betting against governments at this point as a self-fulfilling prophecy, as if anybody with even a cursory knowledge of economics can't see that governments/central banks are stuck and have no other aim but to print. He handled this well by stating that he simply does not want this to happen and that it is not to his long-term benefit for it to happen. Nobody WANTS to see this happen, but it is happening and it would be entirely stupid for a man in his position to cling to ideas like nationalism, patriotism, belief in government resolve, etc.

    "Guns and gold"

    Yep, gold typically is the longer-term inflation hedge as well as a short-term hedge (for those short-term traders); what's the problem? Guns? Well, it always makes sense to have a tool for certain purposes, guns happen to be some of the best tools for self-defense. I thought that it was funny that the interviewer asked if that (guns) was because of Bass' "fear of social unrest as a result of what is going on?" My answer would have been quite different than his, I would have asked, "have you opened up the blinds, driven down the street, turned on the tube, checked out the internet, talked to any of your friends, do those two orbs in your face work at all?"

    And, a quote that really drives the point home:
    "Capitalism without bankruptcy is like Christianity without Hell."

    I couldn't have said it better myself.