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Kyle Bass – The real risk to the world is China

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Kyle Bass interview with Maria Bartiromo of Fox Business Network – Published on May 4, 2018

Hayman Capital Management founder Kyle Bass explains why real inflation will occur globally.

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KYLE BASS It's good to see you again. Thanks so much for joining us this morning. Good to see you too Maria. How are you. I'm good. You've been investing and you have studied China and Hong Kong for a long time. Give us your expectations for these trade talks. You know what President Trump and his team are doing is something that really should have been done a long time ago. I agree with his assessment. You know are are are kind of open door policy. China began when Nixon and Kissinger accelerated under Reagan and Clinton and and even through Bush and Obama. So this is this is a non partisan argument that our country has to tackle we're transferring 450 billion plus of our wealth to China every year and we just need to level the playing field. And what's going on over there between IP theft and and deceptive trade has to be stopped. And I applaud his efforts.

Yeah I mean this is an important story and I feel like everybody gets this because we know that China has been stealing intellectual property for years. And the other thing they're doing Caila is they're transferring the technology they're involved in about 10 percent of venture capital deals. So they invest in these companies that have these innovations in AI and robotics and then they just transfer the technology to Chinese companies and ultimately they just set our own game. And that's one of the reasons you are against Broadcom Qualcomm deal because these companies are the underlying underpinnings of a lot of important technology in the United States is that right. That's right. China plays a very long game while while we play daily weekly quarterly games they play they play games over over over decades and even centuries. And I think that we have to start thinking a little bit more strategically. You know I see this morning where Apple's Tim Cook is saying I'm very optimistic about the China U.S. trade relations. Of course he is he hopes to sell a lot more iPhone's in China. But Tim Cook is not in charge of our national security definitely not in charge of our trade policy. So you have these bifurcations happening between say business heads and people that run our country and I think people have to understand that these agreements are not all purely based on economics and earnings per share. These agreements are about our security in the long run. And I think the press narrative is a hard one to tell.

If you're in the Trump administration I think the narrative starting to emerge that this isn't all about getting an economist on the line and saying well is this good or bad for our economy well something that can be good for our economy on the front end but giving away all of our technology and intellectual property on the back end is terrible. Yeah and we're starting to realize this.

Look the Chinese are starting to play games in in Silicon Valley whereby they're starting to invest through Chinese state owned VCs in U.S. technology companies just to block those companies ability to sell their wares to the U.S. government. Now they're playing such an incredible offense that hopefully our our defense and intelligence agencies you know let's they start to move forward on this and I feel like we are finally moving in the right direction.

Yeah which is why I know you aren't so worried. Now like many other people whose head is on fire about the aluminum and steel tabs you said look you know the bigger issue is China. And that's what we need to get to. What are your thoughts about markets brought the markets here and the fact that markets get really roiled when we start thinking or there's a suggestion that there would be issues around trade.

You know I think if you look at the markets reactions to the various positions of   the Trump administration how long have they lasted they've lasted two or three days two or three trading days and then the market forgets about it. Market comes back up. You know when you look at global GDP you look at the growth in the emerging markets look at growth in emerging Asia. Everything looks fine today.

You know the the 800 pound gorilla in the room is the construct of China's credit markets. You know they're approaching 50 trillion dollars worth of bank assets on it on a GDP of 12T. So the real risk to the world is China. Finally having its come up inside its banking sector I find it I find it comical that China is now opening itself to further foreign investment in their banks of course you know you think about the spider saying that to the fly you know once they've ruined their credit system of course stolen by overseas.

What's your take on allocating capital today your big clients institutional clients fund of funds how are you allocating capital for them right now. You know from my perspective there are a few bright spots in the world and I think Southern Europe is finally coming out of the European crisis that of course Europe entered shortly after our financial crisis. And you know we've spent a lot of time focusing on Greece so we have a lot of our assets allocated to Greece because they've essentially gone through a Great Depression for eight years. So there are bright spots in the world you know the places where I think we all need to be focused on is our trade relations with China.

This summit with Kim Jong un and I think something that's under covered in the media is July 1st we're going to have a Mexican election. And you know you have you have a guy coming in that is leading in the polls. And lo or Lopez Obrador that has has compared Mandela to Castro or sorry Castro to Mandela and the somewhere between Castro and Chavez. I mean am Amla is a complete nut job.

Yeah. And I think he's going to win the election in Mexico in July. So when we start talking about renegotiating NAFTA NAFTA is a complete ball in the air in the next two or three months and I think that's a real risk to I think of course I'm in Texas so that you know our trade negotiations are trade relationships with with Mexico are something that people really need to be focused on. And maybe maybe being careful allocating money to Latin America at the current moment. That's a good point which is why the president wants to get a new NAFTA deal in place within the next two weeks. Actually from what I'm hearing we actually could see that if we were to get this new deal in place before the elections July 1. Let me ask you that Tesla the reporting after the close tonight a lot of negative headlines on the company recently Kheil that they they burned more cash than they do fuel.

So let me let me first state by saying that I love the product. Actually we've invested in two of them and there are a lot of fun to drive. And I think Musk is a visionary. Yes if one has to be pragmatic and just deeply analytical about Tesla's balance sheet. I have no idea how this statement that he made recently publicly could possibly be true meaning they don't need to raise capital this year. I think that statement is going to prove to be false.

I think that if they're serious about rolling out the big truck and the Tesla Roadster that they're going to need to raise two or three billion dollars this year. And then the question is What did he learn? What did Musk say publicly? and is that a securities law violation?  Well I guess we'll see sometime in 2018.

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