Kyle Bass: Hong Kong Is Desperately Short Dollars

Kyle Bass‘s Speech at CPDC Conference that took place on April 25, 2019.

Kyle bass desperately short dollars

Kyle Bass: Hong Kong Is Desperately Short Dollars

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Transcript

It's an honor to be here and honored to be here with guys like Gordon and Roger. I took a couple of notes. I needed my pom poms. There was. Those were great great speeches but I think from the perspective if you don't mind I'll start by commenting real quickly on what Roger said. You know when you look at when you look at China's economy they purport to have to have an economy that's 15 percent of global GDP. When you look at cross-border currency settlement they don't even represent 1 percent of cross-border currency settlement. So we kind of take their word for their domestic art and be a based economy converted back at a rate that they stipulate as the rate and we give them credit for being 15 percent of global GDP for the last six or seven years. Our work has basically shown that China is desperately short of U.S. dollars. They run their own economy where they have R and B where they control the printing press and they printed more money than any any economy and in the history of the world is printed domestically. They run the printing press they run the police right. They run the narrative and they also control the price level domestically of everything except really their real estate. So they can control their own economy but what they can't control are their dollar reserves.

And I think Roger is getting to the point that the Chinese companies list in Hong Kong primarily and raise money in both Hong Kong, Europe and the U.S. they raise dollars primarily they're so desperately short dollars and that's starting to really show itself. And to Roger's point they're borrowing so many dollars. He was mentioning that we're headed to a trillion in fact Chinese corporate borrowing in dollars is already eclipsed a trillion dollars last year it's gone down about one point one trillion and the inclusion the MSCI as you saw the articles in The Wall Street Journal saying that China pressured MSCI with all the pressure they could put on put on them to get their their representative weightings increased which is happening now they're actually going from 5 percent weighting to a 20 percent weighting which is forcing U.S. retirees that index to these things all of our money is going into companies that actually don't have big four auditors that actually don't allow audits they file a glossy financial statements or annual reports. I don't mean to go off on a rant here but I think it's important to understand exactly where China is and what what we take for granted I think in financial reporting.

One of the other issues that you brought up Roger was basically that primary and secondary sanctions as these sanctions on Iran go into place all of the companies that that do business with the Iranian national oil company and the rain international shipping company and everyone that's listed in the primary sanctions are secondarily sanction a bowl and that is up to the United States government to go ahead and and sanction those secondary entities. But you think about one thing that we can do I think in this with this organization I think we can We can also let's say issue edicts as far as what the U.S. can do as action items and one thing we can do is the you know all pensions and endowments run under an IRS exemption and a tax exemption. And so if the IRS issued guidance that said you're not allowed to invest in primary sanctioned entities period it's against the law. And if an entity is secondarily sanctioned able or that what we deem to be secondary sanction while continuing to do business with primary sanction companies we should just make them we should force divestment if you want to keep your tax exemption you're not allowed to invest in these things. That's trillions of dollars. It's something easy for our country to do. So that's something I chair the Risk Committee the largest public endowment in the U.S. University of Texas and we implemented that policy. Last year. And so that should happen. That should be a forced happening.

I think from the perspective the IRS comment real quickly on something Gordon said you know he said the strongest economy wins. And I think that's exactly true. And Roger proved through working with the Saudis that you could pump enough oil to get oil to ten dollars and destroy the Russians. And for that we all thank you Roger. But I think looking forward to China you know we talk about IP theft and they've stolen. Whether you're looking at DSD reports or USTR reports to the president they steal two to three hundred billion a year of IP. It's interesting. That's a pretty big number right. I've never seen one public company file an 8-K showing evidence of IP theft and there's two to three hundred billion of it a year. So I think we should force public companies that go complain to the government to file a case. All right so I'm going to get get off of that ramp because I really enjoyed those prior to speeches well talking about Hong Kong is functionally relevant to the entire picture of what's going on in China. If you believe that China is desperately short dollars, Hong Kong is where China raises all of its dollars around the world. If you remember how Hong Kong's agreement came with the US and with great Britain with the US it came in 1992 and the Hong Kong U.S. policy act that Mitch McConnell led in the Senate.




About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver