As Clock Nears 12, Kyle Bass Repeats Japanese Bear Case

Kyle Bass was on CNBC yesterday to talk investing. Bass first spoke about Japan and Shinzo Abe’s new activist ‘money printing’ policies. Abe has set a 2% inflation rate for the Japan, which has been mired in stagflation for over 20 years. Bass said Japanese debt is 24x revenue, and that makes the country insolvent. He thinks that the economy will explode sometime soon especially due to Abe’s policies. He thinks that Japanese Government Bonds (JGBs) will be sold off as inflation picks up. He explains his case (again) in the interview.

Bass notes that many M&A transactions involve Japanese companies buying foreign firms, such as Softbank Corp (TYO:9984)’s acquisition of Sprint Nextel Corporation (NYSE:S). He also notes that China has an informal boycott of Japanese goods, and 20% of Japanese trade is with China. Additionally, he thinks that there is a possibility of war between the two countries.

Bass is a phenomenal investor who made a ton of money off of Greek CDSs and sub-prime investments (which he is now investing in again), but his Japan trade is not working out well. Some are familiar with the awful returns of Kyle Bass’ Japan focused hedge fund. Few know that the fund was setup with a structure whereby it closes after three years. That is coming up in a few months, which means that his bets against Japan will likely be a big money loser. Kyle Bass has been extremely tight lipped about his Japan fund or his investments, as have  investors whom we have spoken to. Kyle Bass could be shorting Japanese debt or buying CDSs on the bonds in his other hedge fund, or launching a new fund.

As many have noted before, the Bank Of Japan can buy unlimited amounts of JGBs. Therefore, Japan cannot be targeted by bond vigilantes in the way which Greece.  Bass put out a 30 page report defending his bet against Japan, but he did not address the fact that Japan is a currency issuer unlike Greece. Regardless of whether one agrees that a currency issuer, is different from a country which issues currency, Bass will likely loose on his bet.

The clock is ticking for Bass and time is running out.

The full interview can be found here.