Kyle Bass: “We’re not short Chinese equities per se, but we are very invested in the Chinese currency”

Kyle Bass, Ricky Sanders On Wall Street Week

0:06i’m Gary Kaminsky welcome to Wall Street week the shot record for long-term
0:11investor Carl bass and ricky sailor a part of the new class of Wall Street
0:16Titans they take big risks to create big rewards scary movie today we’re going to
0:24learn more from our market moving money managers with new commentary from Kyle
0:28Bass on emerging markets and what it takes to make a great investor
0:42has never been solely about investment we’ve talked about anything that
0:46affected people and their money
0:53from Times Square in New York City
1:00there are many past a wall street for Ricky sailor it was about to furthering
1:05his acceptance to law school for Cal Bears it was about dropping out of the
1:10pre med program both share with us now that aha moment and how it led to their
1:15careers to take you back to your your up brings you born in Miami but you got
1:21raised in Texas that’s right when is your family movie taxes I was in miami
1:25about ten years and so you went to public school your school I didn’t want
1:30to put public grade school I left there I think about the fourth grade and then
1:34doubt in Dallas in Arlington went to high school and we didn’t go to college
1:40Texas Christian what was your first job coming out at Texas Christian working at
1:44Prudential base securities I went into their global training program for retail
1:50FAA’s and spent about two and a half years there and then left to go to Bear
1:56Stearns shortly thereafter did you make the transition do all that to him and
2:00capital my goal was to build a certain este are not worth over time running
2:05these Wall Street firms till I could have enough capital to invest a giant
2:09portion of my net worth and also have enough capital to live on until things
2:13worked or shout something I always planned on I just had to get to a
2:17certain day and I got to that day and I kind of December 2005 some of the people
2:22on Wall Street that you looked up with people that thought if either other than
2:26Gary Kaminsky the other than you thought to yourself that’s great success in the
2:31industry that swell when again I was fascinated by the psychology of it all
2:34actually and I read shredders books you know the Market Wizards I read every
2:39book this sort of several routes and since have been able to meet george and
2:45and his son and
2:46become more familiar with them so it’s been a spinoff of come full circle
2:52bringing you come from a family of money managers
2:55a break he grew up in South Shore Long Island in a town called Woodmere went to
3:00the same high school as Gary Hill High School just a little bit younger than
3:03Gary you can say a lot younger and my dad was in the money management business
3:12he was an analyst at Goldman Sachs went out to start a hedge fund in nineteen
3:16eighty to one of the early hedge fund guys in my brother went into the
3:20business as well you know I’d say I say we didn’t we didn’t grow up by talking
3:25about PE ratios in GDP at the dinner table little more about that five counts
3:29and that the goings on a little league but you know it was always in my blood I
3:34didn’t think I wanted to go into it and then after I decided to defer my law
3:38school acceptance cause I talk to people who are lawyers who really didn’t like
3:42what they did
3:43came into the business and went to work for an amorous mark and absolutely loved
3:48it from the midwest so let’s go another legendary analyst and a great hedge fund
3:52manager Morris market was an analyst at Goldman away you go back a little before
3:56the show you went to university Wisconsin which studied accounting and
4:00finance which i think are the two hundred paintings for an investment
4:04career at least 44 analytical work in 44 money management so when it did they’ll
4:10go on sale my god I’m gonna follow in my dad but you know it was it was it was
4:15really at this moment where I I decided to defer going to law school and sort of
4:21see what it was like to really work for a while and I got into the business
4:24world and just loved it from the moment I got in there I I actually work for a
4:31guy Wisconsin and David herro who was a great friend and a mentor to me who’s
4:36now a money manager at oakmark international and he and Frank Morris
4:40Marc frankly shaped sort of what I become an investor richard talked about
4:44the beginning of a minute capital you have six and a half billion on the
4:47management now you started that from philosophy around the farm culture etc
4:52short so when are seventeenth year we started with investment philosophy that
4:58I call quality value
4:59joining good businesses and growing businesses but wanting to pay value
5:03price and I think that goes back to the two people I mentioned before David
5:06Harold kind of a classic value investor contrarian and then mark mark was more
5:12of a high quality business deep research and growth investor and I kinda like the
5:16intersection of those two things are sometimes you can pay too much for for a
5:20great growing business and sometimes you know stocks are cheap cheap for a good
5:23reason I wanted us to be not only investing in high-quality businesses but
5:28the organization that had a great reputation and so we have a pretty
5:31terrific culture them inside great people that work for me
5:34we got our our research team has an average tenure been nine years which in
5:39this businesses is really impressive and go to work every day so what motivated
5:47now I like to win and having having any losses on your card drives you even more
5:53like us on Facebook Follow us on Twitter and Instagram
5:59Wall Street week is sponsored in part by Hightower and unobstructed view imagine
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6:18hightower is the new blueprint for financial advice by the fiduciary
6:24standard a legal pledged to put our clients interests first
6:29not because the douchey area is the latest too bad but because it’s what we
6:32were built to do I used to dread getting up and going to work was done I was
6:41tired being a thriving arts and I started looking around for business and
6:44I believed in and I kinda wanna do something little more green or mentor
6:48first helping create a business plan and help me and they’ve really taught me how
6:54to think for help
6:56unimaginable possible for free I’m here because I’m here because of school or
7:03get your free business majority
7:07drive passion purpose just a few of the characteristics of what makes a great
7:11investor according to hedge fund manager Kyle Bass now two of wall street’s best
7:16that’s and Sandler are going to teach you about their investing philosophy
7:21numbers show the last summer months talked about the difference between
7:26fundamental research and technical analysis your fundamental research guy
7:31do you think about technicals at all when you make an investment you watch
7:36the trading in the equities the dead currencies we do I think
7:42and the various selloff that you’ve seen in in some of these different asset
7:46classes whether it be farmer whether it be the MLPs upstream midstream MLPs you
7:52can do all the fundamental analysis you want to do but you have to have views on
7:56what the future prospects are gonna be you also have to have used on the
8:01behavior of the participants because economics assumes that all participants
8:06are rational and we all know that there aren’t that many rational participants
8:11in any anywhere anywhere in the world
8:13Santana result of investor told the losing money out of position with a
8:18short-term losses this toward the change of behavior we we always say that
8:22definition of a long-term investment as a short-term trade that went past so
8:28what motivated now is it is it money
8:31actual exercise the social good I think its intellectual growth the social good
8:38as has been really fun to be on the right side up and then winning you know
8:43I still I I like to win and having having any losses on your card drivers
8:48you even more I get that believe me so ten years and I mean I’ll never saw
8:54right now just in what context what what will the structure look like thoughts or
9:00they will be managing money you found a profession that yourself actualizing in
9:04so you will be managing money for years ago for sure what type of people make
9:08good investors in your mind
9:10socially inclined people financially inclined people I think so I think I
9:17always say when thinking about this in talking about it with the people I
9:22admire most that the people that tend to do well over long periods of time have
9:26something that’s that tonight and that’s this I called a constancy of purpose you
9:31know these people that get up every day and no matter what’s going on in their
9:35life no matter what’s going on in the world they get up they work hard they
9:38have that constancy of purpose and they don’t let anything get in their way and
9:42you and I both know many of these people and you can’t teach that and you can’t
9:47lose that when you have it and I actually think that’s the note it’s
9:52basically being driven and that drive is what gets people to the finish line
9:56want to go back to value investment approach and a growth stock investment
10:02approach so on the value side you’re you’re buying low p/e names are
10:06undervalued intrinsically on the roadside you’re willing to pay up a
10:10little bit for that could you believe that the company’s going to outpace
10:13itself with its earnings but you’re saying that you’re at the intersection
10:16of that which some people call growth at a reasonable price
10:20yes so explain to us why you like that the most so look to me
10:25growth in value are actually on the same track because a growing business can
10:30grow into a value stock and by the same token a value stock may be statistically
10:36cheap today but the business is performing in a certain way it may be
10:39more expensive tomorrow and so you know our view is that that growth in value
10:45sort of work together and as an investor in good businesses and growing
10:49businesses have the opportunity to benefit from sort of growth of intrinsic
10:53value and so it may not be statistically shit today but within a reasonable
10:58period of time it should be statistically cheap I think that the
11:01differences and what we try to take advantage of these traditional growth
11:05and value investors actually create the opportunity for us so growth investors
11:09want to own growing traditional growth investors one on growing businesses
11:12businesses that are growing at a certain rate growth is accelerating and they
11:16don’t really care very much about the price they pay and so that presents an
11:20opportunity for us where stocks get over price
11:23or where we buy something that turns into a traditional growth stock and then
11:29they take it to a level that’s beyond what we think is fair and creates a
11:31laboratory for us and that is what sometimes commonly called momentum
11:34investing just plain growth top-line revenue growth not necessarily focus on
11:39what that value is in terms of long-term earnings exactly what what what what
11:43their earnings power is in in there for what price you will pay on the flip side
11:47of value investor is looking at statistically cheap stocks based on a
11:52number of characteristics price-to-earnings book value free cash
11:56flow they tend to care less about whether businesses going in three years
12:00and so they can get tripped up on a business that i think is growing slowly
12:03or appears to be growing slowly looks cheap but what’s happening is the
12:07difference between a business that is growing at a low single-digit rate and a
12:11business starts to decline is very meaningful particularly when this
12:14leverage involved and so a number of our short opportunities actually come from
12:18and what we would call value traps or businesses with secular pressure where
12:22the guy on the other side is saying this is a cheap storage solutions explained
12:25that saw a value trap is it looks great on a fundamental basis book value
12:30analysis PE analysis but it’s not growing enough for it to really have a
12:35stock price appreciation of its ranking and so it looks like it’s 10 times
12:39earnings today but with a little bit of of top-line declined from operating
12:43leverage financial leverage its gonna be twenty times earnings in three years but
12:47would it be fair to say that eminences shorting value traps and getting long
12:52growth at a reasonable price I think we have I would have said I would say we
12:57own high-quality businesses that we think are underpriced in the market for
13:02a given reason it could be a business that we think is gonna grow more than
13:05the market thinks it could be a business that is a growth business that stripped
13:09and people are very focused on the short term and so we think it will regain that
13:13or it could be a slower growing but high quality business with the market is
13:16misunderstanding some piece of it on the short side we tend to look for either a
13:22business that could disappoint wall street expectations so this could be a
13:25high growth stock that is going to disappoint or a stock that faces secular
13:30pressure where it could appear to be cheaper at a value trap and we also tend
13:35to short
13:35related business shorts where we think the market is is looking at statistical
13:40numbers that are completely false or or aggressive rikki we’re in general you
13:45get your investment ideas where they originated so you know i think i think
13:48im alongside it tends to be from our guys paying attention to what’s
13:52happening within their sectors it tends to be you know where is that whereas
13:57growth occurring words marketshare shifting which stocks within this sector
14:01might have a short-term problem but a promising long-term outlook on the short
14:04side you tend to have to go fishing a little bit deeper we do a fair amount of
14:08screen is companies where the counting is is all messed up and and free cash
14:14flow and earnings are going in opposite directions when you’re investing in
14:18absolute absolute return strategies like eminence it’s not the relative
14:22performance it’s what the absolute return is because as we used to always
14:26say you can’t buy groceries at the supermarket or relative performance best
14:30way to explain why I think I think that’s right and I think investors who
14:34who short stocks need need to realize that the wind is blowing against you and
14:39so you’re right benchmark is is not whether you making monies were you doing
14:46i’m carl icahn I’m going for Barry Rosenstein Larry Summers David
14:53Rubenstein Andre Agassi job smoothly cooperman I’m Dave Petraeus on drug and
14:57Cheetos ironweed I’m watching Wall Street week I’m watching LOST i watch
15:02Wall Street we i watch Wall Street week I’m watching Wall Street regional
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15:41covered in it so why do nearly 800 million people suffer from lack of clean
15:46water on the road that’s completely unacceptable to me and that is why I’m
15:51working on a way to solve this global problem like here in Sao Paulo Brazil by
15:56taking too polluted water we already have and providing technologies to put
16:00it back into clean water my name is many senior VP of technology we are spending
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16:43random thoughts now from Kyle Bass on opportunities he sees in Argentina and
16:49the emerging market selloff
16:52talked about opportunities in Argentina a country that’s in obviously the
16:56missing geopolitical change tell us a little bit Argentino what you think
17:00they’re now you know the good news is there’s new leadership I think my career
17:06as a pro he’s very pro-business I think he’s going to end up engaging with these
17:12vulture funds that have held them up for the last ten years plus and I think that
17:20they’re going to get to some sort of settlement now there’s a lot of these
17:25hedge funds and other funds that have bought debt and are sticking these guys
17:29in bankruptcy courts over that debt that’s right the prior administration
17:32was resistant to dealing with them and you believe now that president Mark we
17:36will deal with them that’s right so I was in for the debt of the debt that
17:41restructured or that when Argentina it stopped paying its debts in the early
17:45two thousands roughly 93 percent of that debt exchange into new debt seven
17:51percent of its
17:52we’re not going to exchange we’re going to hold them that their country ransom
17:56essentially they’re going to hold it hostage and they want 100 cents on the
18:00dollar plus accrued plus penalties and that’s been the standoff between kind of
18:05the hedge fund vulture universe and how do you think that reconciles don’t come
18:10up they’ll come up to a number that somewhere somewhere in the middle
18:13once they do that then Argentina Argentina been locked out the global
18:16capital markets from a sovereign perspective for over a decade imagine if
18:20the us- couldn’t sell bonds because we couldn’t access to come I don’t want to
18:25imagine that day that will never happen I don’t think but got a much brighter
18:31future ahead of it that has Kyle after 2008 after the correction a lot of
18:37advisers advised clients to look to the emerging markets what advice do you give
18:42to viewers who may on some of these assets he’s emerging mortgage rate funds
18:47these equity funds these headphones I think they’re gonna see a lot more pain
18:51for things are ok
18:53you mentioned BRIC Brazil Russia India and China so you look at Brazil and the
18:59scandal goes all the way to the president the carwash scanner is always
19:03the president and it is a complete disaster with corruption and chill day
19:08till they root out all of the corruption and fix Brazil Brazil’s gonna keep going
19:12south russia couple of things have to change global chess moves in and being
19:18sanctioned for then you get India’s the one bright spot in the bricks and then
19:22China which i think is the big one that’s gonna have a non-performing loans
19:27cycles so if you ask me which anymore and then in the AM selloff I think we’re
19:31probably in the mid 5th inning maybe maybe entering the six but we still have
19:38three tough innings to go when you look at opportunities right now what’s the
19:44greatest opportunity if you had to say to the viewer we saw what was happening
19:48subprime USA and this is what we see now even our views on credit contraction in
19:53Asia and China particularly going through a let’s say they’re gonna
19:56banking law cycle like we like we went through the GFC there’s one thing has
20:00happened china’s gonna have to dramatically devalue its currency now
20:04that’s not something the readership can really get your arms around it but it’s
20:09really tough to invest as a non professional investors you you know what
20:13I mean so I don’t think valuation because of its interconnectivity with
20:18the rest of the world economy is going to also upset the world economy is going
20:22to cause a slower growth dynamics for everybody that’s right so also has
20:26implications on the USDollar so why you can’t necessarily play the China
20:31devaluation its
20:33what does it mean it means a stronger dollar for many many years China many
20:39years ago
20:40attach their currency to the dollar because I I think they had their wagon
20:46to our star very smartly back then because our goal of the united states
20:51was did appreciate our callers through inflation so we issued debt to the rest
20:56of the world we’d appreciate our dollar and we actually end up paying off
21:00getting monetizing the debt to pay the debt that with dollars are worth less
21:06than the ones that you borrow it exactly right and so now the real problem is
21:10china has hitched their wagon our star and their currency is effectively
21:15appreciated about 60 percent versus the rest of the world since 2002 let it go
21:20and it’s going to be the beneficiary let’s explain to viewers why it’s
21:26killing them and so what’s happening is as their currencies appreciating their
21:30goods and services that are being produced in China and sold around the
21:33world have become more expensive as a result of that appreciating currency
21:37right so as we all know there was out there was a labor arbitrage between us-
21:42labor rates in chinese labor rates and the open the free and open global
21:47economy college free trade enabled arbitrage to to normalize itself and
21:52this phenomenon help normalize it quicker so China’s effective exchange
21:57rate moving up versus the rest of the world made their goods and services
22:01little bit more expensive each year and now it’s kind of that labor arbitrage is
22:05gone that labor arbitrage to go on and they they’re banking system is expanded
22:09400% seven years without a non-performing loans cycle my view is
22:15that we’re gonna see non-performing loans
22:16janice was on the show few months back very negative on china because of many
22:21of the things that you’re saying are you short China well so we’re not short
22:25Chinese equities per se but we are we’re very invested in the Chinese currency
22:30given this thesis we think you’re going to see a pretty materials evaluation
22:36and we think it’s going to be in the next 12 to 18 hillary’s really tough
22:46although I might think she might be the most
22:49feeling good about Pfizer Johnson and Johnson for Amgen there are components
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23:19us on the web at Sector spiders dot com ok so what would you bring to my company
23:23do you need a problem solving skills are a phone or computer
23:31no college degree though not yet but life stop me a lot and I’m ready for
23:36well your company could be missing out on the candidates in Leeds most
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24:23Stanley where capital creates change
24:27now it’s time to get personal and learn a little more about Kyle Bass and Ricky
24:32sailor from football the spear phishing there’s more to these guys and just
24:36money management support anybody in the upcoming election and and will the
24:41election have any impact on the markets elections always have impact on markets
24:46I think the macro forces are going to overcome that of any potential election
24:52outcomes I’m not supporting anyone I think we have I think we have a little
24:57bit of a of a of a hollywood you know crew on that on the republican side and
25:03on the democratic side I really just think it’s Hillary I think that to elect
25:07hillary’s can be really tough although I might think she might be the most fit to
25:12govern the country given her experience we’d like to finish up with a little bit
25:16of word associations say a couple words and when you get your reaction to see
25:21their favorite book I really enjoyed this post
25:25Michael Warren wrote our faith and fantasy about 10 years ago about the
25:30Middle East historical reference in Middle East and how the Middle East and
25:33the conflict with the United States really began at the at the when our
25:38founding fathers alright texas big states the second amendment two members
25:44of the follow-up to that there are plenty of things wrong with the gun laws
25:48in my opinion for anyone to be able to go buy a fifty caliber rifle that can
25:54take down airplanes today you can walk into a gun store you can buy something
25:58the bullet about that big that big around and said at the end of the runway
26:02and take a plane now maybe we should reconsider that as far as the right to
26:07bear arms I think that every single person that buys a gun shy after
26:10register with the state government that’s not a crazy idea and that’s
26:15something that the gun lobby which is fighting until let’s switch abruptly
26:20favorite vacation spot
26:24what’s a day off I mean I love i love reading and spearfishing as the TV and
26:31hanging out in the country
26:34ok what about Michael Lewis I think Michael Lewis right some interesting
26:40books and I think that in my interactions with him what I’ve noticed
26:45is hyperbole tends to sell books he does great stories and he’s a great
26:50investigative journalist and he adds a little hyperbole in there and then the
26:55book takes off gonna play word association get your favorite sport is
27:00football to watch my favorite sport is probably football to play my favorite
27:04sport is tense favorite book I like in Sicilia I like the animals that was just
27:13a book that just spoke to me okay so your favorite vacation spot and
27:17harassment of that activity bike and hike in wisconsin football man I I love
27:27Wisconsin everything I’m a crazy fan the person you admire the most you know I
27:33think I think Bill Gates has been one of these entrepreneurial visionaries built
27:39a business to something unbelievable sort of defied the odds of what he did
27:43then turned his life to charity and make the world a better place
27:49allocated his philanthropy capital to Bill Gates just told you about what
27:54people think of
27:57you want to thank I’ll bass and ricky sailor for joining us today on wall
28:01street we that’s it for today you can check in with us all week and Wall
28:05Street week dot com until next Sunday prospers
28:23and presented by skybridge media Lt

Seth Klarman: Investing Is Art First, Craft Second And Science Third

Seth KlarmanSeth Klarman is considered to be one of the best value investors of all time. Unfortunately, he does not give many interviews or lectures. Q2 2020 hedge fund letters, conferences and more Luckily, those interviews and speeches that he does give are stuffed full of information and highly insightful comments that value investors can learn Read More