Wednesday, August 18, 2010

[Video] Hedgie Kyle Bass on CNBC August 2010

"Legend in his own time" hedge fund manager Kyle Bass of Hayman Capital stopped by the CNBC studios yesterday, so we have 2 videos below.  Interestingly, Bass has come out with specific time frames for 'end games' for Japan and the U.S.[Jan 13, 2010: Kyle Bass of Haman Capital - Japan Defaults on Debt or Devalues in 3-4 Years; US in 10-12]    - I believe he has under anticipated the will of central bankers (especially ours) to play the Banana Republic game where the left hand buys the debt from the left hand (or in fancy terms 'quantitative easing').    [Feb 5, 2010: Sovereign Risk Chart - Where Would the US Fit in, on Europe's Scale?]  Technically, Japan & the U.S. can never really 'default' - they can just have their central bank buy debt to their hearts content, so its more of a default by debasing the currency.  [May 13, 2010: Kyle Bass of Haman Capital - The Pattern is Set, Betting the Bank on a Keynesian Free Lunch]

(sorry for the big spaces - not sure why they are 'stuck' here)

Video #1 focuses more on economic themes

Video #2 focuses more on investing themes

How much additional soverign debt does the world have to issue this year, just to make up the massive, growing budget deficits?

"You have to think about the world and its totality. There is a finite amount of capital, so just to plug fiscal deficits the world has to issue $4.5 trillion worth of new debt—that assumes the existing debt stock rolls," Kyle Bass, managing partner of Hayman Capital, told CNBC's The Strategy Session on Tuesday, adding, "but where does this $4.5 trillion worth of new debt come from?"

"U.S. banks' securities portfolios have increased 26 percent year over year, all they are doing is buying Treasury Bonds. The Fed doesn't want that to happen—they want the yield curve to flatten and the banks to go lend," Bass said.

With the Q2 GDP (Gross Domestic Product) set to be finalized on August 27, Bass believes it will likely be revised to 1 percent or lower.  Bass said countries trap themselves by heading to a zero interest rate policy (ZIRP), due to avoidance of painful restructuring in the private and public sector, running double fiscal deficits, and piling on debt

"The only way out of that trap is painful restructuring down the road or stay in the trap the way Japan has for twenty years until demographics change, which is happening with them right now," Bass said.  For that reason, he believes Japan will likely face debt crisis within two years.  "Countries typically default if sovereign debt is 70 percent of their GDP," Bass said.

"If 50 percent of the our debt rolls ever year a move in the short-term rate immediately effects the income statement for the U.S.," he said.  The solution, according to Bass, is for the U.S. to cut its spending and slash its budget to avoid deflation. Down the road "the U.S. will have to restructure," Bass concluded.

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