Kyle Bass, whose Dallas-based hedge- fund firm Hayman Advisors LP made $500 million in 2007 betting against U.S. subprime mortgages, said the Bank of Japan's recent doubling of money is "the beginning of the end" for Japanese Government Bonds.
Bass has been short - long term - the JGBs for three years already and announces he's only betting 1-2% of his capital to possibly make 300 times his wager. This bet has been a loser so far, and it is called the "Widowmaker" bet by wags on Wall Street. Despite this, Bass is now more firmly committed to his view the JGBs will blow up sooner than later.
He thinks when the Japanese Government Bonds finally crash and burn, that it will happen rapidly and because they have 20 years of "buildup" behind them.
Bass made one observation which rings true: "The whole world is chasing yield." He points out the US stock market is being led by formerly big dividend paying utilities which are not the normal stocks to lead a rally. As he said, "Things that don't typically lead us into new highs, it's because of their dividend yields."
Another notable quote: A host asks Bass about other instruments with yield which are popular at this time. He observes, "With Bernanke pinning rates at zero," . . . "structured credit, and even mortgage credit, they're one of the most liquid areas of the marketplace today. People can't get enough of them. And think about sub-prime credit . . . 97% of the 20,000 line items are still rated below investment grade, they're still junk. The ratings based buyers aren't even there yet! The money is being mis-allocated by the printing press."
On Gold
On gold, Bass admits his firm has always had a position in gold. "Monetary policy is the only policy in town. I am perplexed as to why gold is as low as it is."
". . . The global monetary base is north of $70 Trillion, all the gold in existence is only $7 or $8 Trillion, there's only $2-$3 Trillion of investable gold . . . at some point in time, I'd rather own gold than paper. I just don't know when that time is."
Bass goes on about gold, "They can't print any more. They can mine some more. They can't (produce) at the rate the Central Banks are printing money. I just view gold as another currency, it's that simple. I don't view it as a commodity."
"If Monetary Policy is the only game in town, then we're in for a world of trouble."
On Housing
"We're not expecting housing to get materially better, but we're not expecting it to get materially worse."
"We think it (housing market) will marginally improve going forward.
On Interest Rates & Quantitative Easing In The USA
"One of my underlying beliefs is that the US rates
can't go up. For a long time Bernanke said low for a long time, then he said low for two years. I think he means low
forever, as long as he can keep them there. Every point of interest rates, every full one-hundred basis points of interest rates represents another $150 Billion in interest rate payments."
"It is crazy to think we can raise interest rates by 100, 200, 300 basis points." Bass suggests the Fed might only be able to raise rates 25 to 50 basis points tops, and says, "I don't think we can raise interest rates."
He explains because of his views on interest rates, he believes ". . . housing will have a bid."
". . . If rates go higher, all bets are off on my perspective in housing."
The Limited Is Closing All 250 Of Its Stores (Fortune)
