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What is Bass Investing In?


no_free_lunch
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“Today, global markets are at the beginning of a tectonic shift from deflationary expectations to reflationary expectations. What happens to economies at maximum leverage when interest rates begin to rise? Reconciling the potent strengths of the world’s largest economies with their inherent weaknesses has revealed various investable anomalies. The enormity of the apparent disequilibrium is breathtaking, making today a tremendous time to invest,” Bass wrote in a year-end letter to investors seen by Yahoo Finance.

 

He added: “One opportunity in particular has the greatest risk-reward profile we have ever encountered in our decade of being a fiduciary.”

 

http://finance.yahoo.com/news/kyle-bass-global-markets-are-at-the-beginning-of-a-tectonic-shift-204146265.html

 

Anyone care to speculate what he might be thinking of with his greatest risk reward idea?

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I found this:

 

 

http://nypost.com/2015/08/22/hedge-fund-manager-peaked-at-predicting-mortgage-meltdown/

 

"n 2007, Hayman Capital earned a 212 percent return shorting subprime mortgages."

 

"Over the past 91 months, or nearly eight years, Hayman Capital’s main fund had an annualized performance of just 1.56 percent"

 

Since the article was published in August of 2015, his results should have improved some. A year of 212% returns gets you to close to 5x pretty quickly . :P

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I found this:

 

 

http://nypost.com/2015/08/22/hedge-fund-manager-peaked-at-predicting-mortgage-meltdown/

 

"n 2007, Hayman Capital earned a 212 percent return shorting subprime mortgages."

 

"Over the past 91 months, or nearly eight years, Hayman Capital’s main fund had an annualized performance of just 1.56 percent"

 

Since the article was published in August of 2015, his results should have improved some. A year of 212% returns gets you to close to 5x pretty quickly . :P

 

And that was 2007. The real meltdown occurred in 2008 - did he still have the position on? Could be that the whole 5x comes those two years.

 

If we assume the 212% is the whole return, and that he was flat in 2006 when he started, it's about 5% annualized since 2007.

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For a while he was touting short Chinese Banks and short certain pharmas on some obscure patent litigation basis. From afar, it seems he is always talking up a massive trade he's about to make a fortune on. I've spoke to a couple people who have invested with him and the consensus is that he's a bright guy who comes up with some oddball stuff that sounds great but like everyone else, when it comes time to turn ideas into dollars, he sometimes leaves a bit to be desired.

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I chatted with a friend of mine, and the idea seems to be that Bass pitches his funds as insurance. Like, if China goes under, maybe have a little in the fund to protect against it. Etc.

 

smart to call a portfolio "insurance" that you pay for with negative returns. dog ate my homework.

 

bass is a favorite of mine to listen to on youtube, but he gets into widow maker ideas more often than not

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I chatted with a friend of mine, and the idea seems to be that Bass pitches his funds as insurance. Like, if China goes under, maybe have a little in the fund to protect against it. Etc.

 

smart to call a portfolio "insurance" that you pay for with negative returns. dog ate my homework.

 

bass is a favorite of mine to listen to on youtube, but he gets into widow maker ideas more often than not

 

+1

 

It's incredibly brilliant and brings to mind ScottHall's thoughts on how some PMs are great marketers while others are great investors. (Occasionally, you have some that are both.)

 

If you can frame your fund as "insurance," then you earn management fees while losing money steadily because no one expects to make money on their insurance contract. And if/when you have a big year, then it has a two-fer effect because (A) you might make some incentive above your high water mark, and (B) like insurance, people tend to flock into the fund to prevent against the next "cat event."

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I chatted with a friend of mine, and the idea seems to be that Bass pitches his funds as insurance. Like, if China goes under, maybe have a little in the fund to protect against it. Etc.

 

smart to call a portfolio "insurance" that you pay for with negative returns. dog ate my homework.

 

bass is a favorite of mine to listen to on youtube, but he gets into widow maker ideas more often than not

 

+1

 

It's incredibly brilliant and brings to mind ScottHall's thoughts on how some PMs are great marketers while others are great investors. (Occasionally, you have some that are both.)

 

If you can frame your fund as "insurance," then you earn management fees while losing money steadily because no one expects to make money on their insurance contract. And if/when you have a big year, then it has a two-fer effect because (A) you might make some incentive above your high water mark, and (B) like insurance, people tend to flock into the fund to prevent against the next "cat event."

 

taleb offers an "insurance" fund.  if you make money with that, some nasty tail risks blew up and we are all on the street.  bass's saying japan, first, and now china is overlevered is just a straight up bet, not insurance imo. but i grant you, he was dead right with mortgages.

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I'm not 100% sure that either of them actually offers "insurance." I spoke w/ Chanos once, and he was aware of the "big short" trades that a lot of people made, but he thought that there was a high counterparty risk on the other side.

 

I merely mean that convincing other people that you're selling insurance is a good gig. Whether it's insurance or not is an entirely different question. :)

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