Kyle Bass gave a presentation at the CFA SOCIETY DALLAS-FORT WORTH
ANNUAL FORECAST DINNER on February 14th. A copy of the presentation has been obtained by ValueWalk. Below readers can find the full video of Kyle Bass speaking as well as the 20 pages, the theme of which was titled, ‘Hayman Global Outlook Pitfalls and Opportunities for 2014 ‘

Kyle Bass
Kyle Bass courtesy of Hayman Capital

United States Fed Tapering & Improving Trade Balance

  • On December 18, 2013, the Federal Reserve announced it would ‘taper’ its monthly asset purchases by $10bn to only $75bn a month; subsequently, on January 29, 2014, the Federal Reserve announced it would ‘taper’ another $10bn to $65bn a month.
  • A continuation of the policy would see additional asset purchases cease by end of 2014 and stabilize the size of the Federal Reserve’s balance sheet.
  • The revolution in unconventional oil and gas projects that has emerged via fracking of shale have radically increased the hydrocarbon production occurring within the U.S.

Revolution of Hydrocarbons in U.S

As U.S. crude oil production has increased dramatically led by the shale oil revolution while U.S. consumption of petroleum and other liquid fuels has reduced off its peak in 2005, U.S. net imports have declined dramatically, a trend likely to continue.

 Unconventional Hydrocarbons Are Changing U.S. Trade 

 

  • U.S. crude oil production has returned to levels not seen since the late 1980s.

 

  • It is one of a series of factors that has narrowed the U.S. current account deficit to the lowest point since the late 1990s.

 

  • That period coincided with the largest USD rally since Paul Volcker slayed the inflation dragon in the 1980s.

Japan Abenomics & Quantitative Easing

Real Yield Divergence – U.S. vs. Japan

  • Japanese CPI has picked up while nominal yields remain close to all time lows forcing Japanese real yields into negative territory, part of the Bank of Japan’s attempt to force a reallocation of capital from JGBs further out on the risk curve.

 

 

  • At the same time, US inflation remains anchored while growth and the Federal Reserve’s tapering of its QE program has led to nominal yields creeping upwards; this has created a long term rising trend of US real yields.

 

 

  • The real yield differential has a strong correlation to the value of USD/Yen over time.

 

 

  • Hayman expects the current divergence to continue and to force further Yen weakening.

Full presentation video and PDF below

Kyle Bass Presentation Hayman Global Outlook Pitfalls and Opportunities for 2014 by ValueWalk