Kyle Bass: Japan is Next After Europe

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“Greece will circle the drain and be ungovernable in the next 30 to 60 days,” said Bass, founder of Heyman Capital and famous for presciently shorting subprime mortgage bonds before the industry collapsed. “Japan is in the crosshairs of the market…I’ve never seen more mispriced optionality in my entire life.”

“The fact of the matter is this is no longer an exercise in quantitative analysis.”

“It’s a question of when, not if.”

“Madoff taught us something.”

“You can make promises for a long time as long as you don’t have to live up to them.”

On Europe:
“It won’t be orderly and I think in the end they’re going to have to wipe out the troika.”

“Greece will circle the drain and be ungovernable in the next 30 to 60 days.”


it’s day two of the big investor conference in vegas. our very own gary kominsky is joining us from the salt conference with two of the biggest names of the industry steve and kyle bass good to see you, guys. thank you for joining us. good to see you. good afternoon, maria. you know it’s only jackpot, not poker. i knew you were a black jack man. that’s why i put it in there. where are the opportunities? what are are you hearing out there from the deep pocket money investors? well, it’s a great privilege to be able to sit here because we just came off this panel and it was about where are the opportunities now and the amount of research is — give us a sense of where that — how that trade is playing out and whether or not you still think that the biggest crisis in the world ahead is going to be in japan. it will be, in my opinion, one of the domino that falls on the sovereign balance sheet side. if you take the time to look at the numbers in japan, when your debts get to be 24, 25 times your revenues, you sail under insolvency and it’s a matter of time before you have a full bond market crisis and you have to write off a large portion of your debt. either you’re going to lose power under severe inflation or you’re going to have a default and in japan we believe that one causes the other and it’s going to be a significant writedown. let me jump in. kyle s. there any reason to believe that the u.s. is headed down that same path? we know what is going on. you heard jim grant talking about the fed and central banks around the world. do you look at the u.s. and worry that perhaps it is looking sort of japanese? i do. we don’t have the benefits that the japanese have had for the last 20 years. so when you look at the u.s., the debts are approaching five times the revenues. we are almost into the zone of insolvency. we are not there yet but my fear is that both sides and there is no consequence for the prove guess see that they are engaging in today and he’s taking the policeman off the freeway. everyone is going to keep speeding. and maria, join the panel. kyle did refer to japan and said that when you look at what happened with madoff in terms of a scream where they rely on investing in the fund there, that’s the way they compare it. steve, you recommend that some time ago the high yield bond market has been on fire to, say the least. give us an update on where you see value. is it an attractive place for investors to look at? i would say it’s fear. it’s not great. you have wide spreads and spreads in the 500s. you have default rates that are still low, 2 or 3%. what we’ve seen is when you have above average spreads, below average expected defaults, that’s usually a terrific environment to invest. i think it’s going to be the macro concerns like europe. kyle mentioned japan. some of the external shocks. the clip for next year is going to weigh on performance but if left to the own devices, the credit markets are good. in terms of where in the credit markets, the floating rate debt is where we see very good value. specifically, structured products. what have we found a couple years usually after dislocation, you have everything that goes down why are you buying nickels? so when you look at the g-8 central bank balance sheets, today they are 15 trillion. we’ve created 15 trillion out of thin air and i think when you look around the world there’s only one unit of currency that exists who’s melt value is worth more than the stated value and that’s nickel. this is a lesson to treech children. when you’re worried about a free call option, a nickel is worth more than 5 cents today, if you were holding your money in dollars, you might as well press the button and put it nickels because what will happen is the administration will have to change compensation of the nickel. this is something that you do with your kids and this is what is going on. they are printing more money than they have ever printed. it’s either going to be severe or mild inflation or moderate inflation and the anything kell is a free call option on copper and nickel and it’s an ininstructive thing to do about what the bank is doing. when they change the content of the nickel, the bad money will run out the good and nickels will trade in the private market more than they are worth. one of the things here at the conference — one of the themes is bond managers like yourself have found the equity markets to be incredibly attractive. are they more attractive than the bond markets? there are certainly a lot of intangibles that are going to weigh more on the equity markets than the debt markets and specifically europe, specifically the election. so having said that, just looking from a valuation perspective, the free cash flow yield on the equity market versus the debt market is very attractive. so all things being equal, the equity market is particularly u.s.-focused better value. guys, good stuff all around. thank you for joining us. we appreciate it. thanks, mere aria. gary, get home safe. thank you. see you soon. go to for more information about investing ideas there. up next, he led his team to two super bowl victories but can

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