Kyle Bass, founder and chief investment officer at Hayman Capital Management, discusses the Greek economy, Puerto Rico bonds and cryptocurrencies. He speaks with Bloomberg’s Erik Schatzker on “Bloomberg Markets.” (Source: Bloomberg)
Below is a partial transcript from Bloomberg on Greece, Puerto Rico and cryptocurrencies, ICOs and his thoughts on all of them
Puerto Rico has $70 billion worth of on-balance-sheet debts. They have about $30 billion of off-balance sheet unfunded pension liabilities that are acute. They have $100
billion worth of debt. There's only 3.5 million people in
Puerto Rico. There's only 1.4 million of them have a job and
about 60 percent/70 percent of those people work for the
government. So, --
SCHATZKER: A situation made vastly worse by hurricane
Maria.
BASS: And, look, the hurricane is a tragedy, it's a
disaster and I think that the Trump Administration and the
United States should be doing everything we can do to help
them.
These are two different questions - one is, should we
help with hurricane? Absolutely. We should do everything
possible. But on the debt question I just think you have to
be a little crazy to think that $100 billion worth of debt or
even $70 billion of on-balance sheet debt is worth anything
with 1.4 million workers in an economy like Puerto Rico's.
So, if you were holding Puerto Rican debt today -
whether it's the general-obligation bonds, whether it's the
PREPA bonds, whether it's the COFINA bonds, what would you be
marking them down to?
BASS: Didn't they trade down -
SCHATZKER: They traded into the 30s.
BASS: I just got back from Greece, as you know, so I
heard last week that they traded materially lower - 20
percent lower in a day or so. I mean --
SCHATZKER: And lower, since the president talked about
wiping out Puerto Rican debt.
BASS: When you look at sovereigns and you look at
history of sovereign defaults, recoveries and wipeouts are
$0.10-$0.20 on the dollar - that's what I think people are
going to end up with.
SCHATZKER: $0.10 to $0.20 on the dollar in Puerto Rico?
BASS: Yes, I mean each situation is a little different
but just in the big picture there's $70 billion worth of
debt. There's 1.4 million people that work - we understand
these things. Sovereigns are all asset-heavy but you're not
going to have a sovereign sell all of its assets to pay
external creditors. They're going to get as many hedge funds
as they can and then they're going to default - that's what
they're doing.
SCHATZKER: Doesn't make any sense to you that that many
hedge funds piled into Puerto Rican debt?
BASS: It does, because there are a lot of these
special-situation funds - many of them I know pretty well -
that love working on things like this. And they are the
people that hold sovereigns hostage. They have holdout
positions and they take - drag people through the courts and
they're wise-guys. But in the end, what's the true value?
I saw a Bloomberg piece that day that Trump spoke that
said, he's calling into question $3.8 trillion muni market.
No, he's not. He's being pragmatic here in saying they can't
repay this debt; we're going to have to wipe it out. He's not
calling the whole muni market out because it doesn't have the
same financial characteristics. So, I think it's going to be
getting wiped out.
SCHATZKER: Kyle, what are your thoughts on bitcoin?
BASS: You're hitting me with a bunch of hard questions
here. Bitcoin - early on I summarily dismissed bitcoin and I
shouldn't have. And didn't understand - truthfully, I don't
understand the depth of the algorithms, the technology and
the fundamental foundation of bitcoin I didn't understand. I
spent a lot of time trying to understand it in the last call
it six months and I believe that the digital-asset class of
cryptocurrency is a real asset-class but in terms of kind of
how the world views digital currencies we talked - when you
look at global cash positions today given global Q/E, they're
now north of 110 percent of global GDP. So, we're talking
about almost $100 trillion of cash in the world.
That has never happened before in world history and so
when I think about inflation - you're top starting to see
wages move. You're starting to see the price of all goods and
services move. The thing that's been really deflationary in
the globe has been technology. It's been a very positive
deflationary force and I think that's played out. The
technological deflation has played out so, now I think you're
going to start to see inflation and wages move. And this gets
into crypto-currency.
The collective value of crypto currency is a little over
$100 billion today. Global M2, global cash is like $80
trillion, $100 trillion; so, what's $100 billion? The
question is, what's it worth? And as a store of value, a
media of exchange and other currency I don't think there's
any true institutional investor has any money in bitcoin - I
know some have a little bit. They have nominal amounts
invested but I think it will be an asset class that will work
over time. I'm not sure how to value it yet - I really have
no idea.
SCHATZKER: Do you own it?
BASS: I don't.
SCHATZKER: No bitcoin, no ether?
BASS: I don't.
SCHATZKER: Are you tempted?
BASS: I say I wish I did but --
SCHATZKER: But you could have bought a lot lower.
BASS: I think there's a digital gold rush that's gone
on. I think a whole bunch of people are going to lose a lot
of money. These ICOs - you're going to see a bunch of them go
completely broke - a bunch of them are frauds. And that's
going to be problematic for all the people that just rushed
in and so I feel like it's a bit of a mania at the moment but
I think in the long-term it's a viable asset class.
