He cranks his rehtoric up on the likelihood of war.
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Less than 5% according to Kyle Bass.
Central Bank balance sheet expansion that goes on infinitely. Japan eventually defaults even though it is a soverign with its own currency. Here.
Bloomberg is doing a five part series on Japan this month.
One take away is that Japan's gross debt is 230% of GDP, but its net debt is 113%. While not nearly as bad, it still leaves Japan second only to Italy in debt to gdp. Bloomberg articles reiterate many of the points made by Bass and Hendry in the Japan bear case. BTW, even though Kyle Bass lost a lot of money on the Japan trade in April, Hugh Hendry made money at it, propelling his fund to the best monthly performance in its history. This highlights the importance of transition dynamics and position management that Hendry discussed in his newsletter. Or perhaps luck? I present this as counter programming, but I think it is some of the worst analysis I have ever seen.
"This is the key idea that Bass is missing, and why his trade is never going to pay off. For a country that borrows in its own currency, government spending finances borrowing! If Japan spends 100 billion yen on something, that's 100 billion yen out there in the world that will eventually wind up in a financial institution, where ultimately 100 billion yen worth of JGB will be purchased. It's the same with the US of course, and it's this idea that Bill Gross didn't get when he famously asked: Who will buy our debt after QE2 runs out? It caused him to get crushed on the Treasury boom of 2011." Wow, this is wrong on so many levels. It doesn't even pass the test of intro macro course analysis. Japan has 230% debt to GDP, an aging population,and a ten year bond under 1%. Its worked so far - why worry? This is the same rationale that supported the Japan bubble of the 80s, the dotcom bubble of the 90s , and the housing bubble of the 00s. However, as the saying goes, the market can stay irrational longer than you can stay solvent. Bass lost a lot of money on this trade in April. "According to the website ValueWalk, citing sources, his fund lost 29% of its value in April, and has really been getting clobbered since inception. We haven't been able to confirm the losses (Update: Now confirmed), " Last month, I made several posts refering to the CDS positions that hedge fund managers Hugh Hendry and Kyle Bass took last year in Japan. I wonder whether these bets will get large enough that when Japan defaults, the entire global finanacial system will be taken down. It must be banks that are selling the CDS products. At any rate, someone is on the other side and when the dust settles - will counterparty risk once again destabilize the economy?
BTW, the Japanese Finance minister admits that they are "worse than Greece" with deficit over 10% and Debt to GDP over 230%. On Dec. 1, when I came back from Brazil through Houston, the WSJ headline at the airport kiosk was on the markets rallying in response to the FED/ECB bailout of European Banks. I commented to friends and family at the time that this is exactly the wrong read of this infomation. In a Dec. CNBC interview, Bass remarks how the markets have misinterpreted a solvency issue as a liquidity issue.
Exactly. Here is a critique of the ERCI call from a recent post. My thanks to Brent, who provides me with many useful and interesting links.Here is another link where the same blogger evaluates the models used by my favorite bears. As I will be on the academic job market next year, I hope my fears and those of Rosenberg, ERCI’s and Hussman’s are proven wrong.
For now, my personal opinion about the US being able to dodge the Euro/Japan-bullet remains unchanged (and of course its own structural unemployment issue). But, as scientists and investors, we must always be open to new information. And I love my kids and wife. |
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