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The latest from Kyle Bass


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Shortly after this meeting, my host informed me of an audit recently done on one of the largest hospitals in

Athens. This hospital was hemorrhaging Euros, and the Greek government is required to make up the deficit

with capital injections. Officials began an inquiry into these losses and found 45 gardeners on staff at the

hospital. The most interesting fact about the hospital was that it did not have a garden. The corruption is

endemic in the society, and it is no wonder that Greece has been a serial defaulter throughout history (91

aggregate years in the last 182 – or approximately half the time). It is unfortunate that it is about to happen

once again. Although – as we have previously stated, restructuring is actually the gateway to renewed growth

and prosperity over time – we have identified at least two assets that we would like to own in Greece in a

postrestructuring environment.

 

That sounds like a pretty good job if you can get it.  :D

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Michael Lewis was on NPR's Planet Money podcast on Tuesday promoting the new edition of the Big Short, and he mentioned that Kyle Bass actually ended up on the cutting-room floor. He had predicted the housing bubble as well but sold his CDSs in 2008 and had already moved on to sovereign debt issues. Lewis remarked that he keeps a basement stocked full of canned goods, etc. "just in case."

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At the 2010 Fall VIC, Kyle Bass and Whitney Tilson talked about opening up a fund to bet on the Japan situation as a way for smaller funds to participate in the thesis.  I don't know the terms/positions/etc. but it might be worth it to reach out if you wanted to play this.

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  • 8 months later...

http://blogs.wsj.com/deals/2011/11/07/hedge-fund-manager-buys-4-9-stake-in-mgic/?mod=yahoo_hs

 

A closely followed hedge fund manager known for correctly betting on the housing market’s collapse four years ago purchased a small stake in the nation’s largest mortgage insurance company in a bet that the housing market has neared bottom.

 

J. Kyle Bass, portfolio manager at Dallas-based Hayman Capital Management LP, bought the 4.9% stake in MGIC Investment Corp, according to federal filings. He said on Monday the bet reflected his view that the housing market’s losses had largely been absorbed. “You can see that the pig has moved through the python in terms of U.S. housing losses,” he said.

 

Shares of MGIC are about 10.2% higher in Monday afternoon trading, to $2.82.

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http://blogs.wsj.com/deals/2011/11/07/hedge-fund-manager-buys-4-9-stake-in-mgic/?mod=yahoo_hs

 

A closely followed hedge fund manager known for correctly betting on the housing market’s collapse four years ago purchased a small stake in the nation’s largest mortgage insurance company in a bet that the housing market has neared bottom.

 

J. Kyle Bass, portfolio manager at Dallas-based Hayman Capital Management LP, bought the 4.9% stake in MGIC Investment Corp, according to federal filings. He said on Monday the bet reflected his view that the housing market’s losses had largely been absorbed. “You can see that the pig has moved through the python in terms of U.S. housing losses,” he said.

 

Shares of MGIC are about 10.2% higher in Monday afternoon trading, to $2.82.

 

Don't tell Bass that we are in the midst of Great Depression II.  If he can't see the forest for the trees...well!  ;D  Cheers!

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http://blogs.wsj.com/deals/2011/11/07/hedge-fund-manager-buys-4-9-stake-in-mgic/?mod=yahoo_hs

 

A closely followed hedge fund manager known for correctly betting on the housing market’s collapse four years ago purchased a small stake in the nation’s largest mortgage insurance company in a bet that the housing market has neared bottom.

 

J. Kyle Bass, portfolio manager at Dallas-based Hayman Capital Management LP, bought the 4.9% stake in MGIC Investment Corp, according to federal filings. He said on Monday the bet reflected his view that the housing market’s losses had largely been absorbed. “You can see that the pig has moved through the python in terms of U.S. housing losses,” he said.

 

Shares of MGIC are about 10.2% higher in Monday afternoon trading, to $2.82.

 

Don't tell Bass that we are in the midst of Great Depression II.  If he can't see the forest for the trees...well!  ;D  Cheers!

 

What I don't understand is how this supposedly "watch your risk first" hedger factors this into his thesis...

 

http://www.reuters.com/article/2011/10/21/mgic-idUKL3E7LL1TL20111021

 

At the end of September, the risk-to-capital ratio of MGIC's combined insurance operations was 24 to 1. Most states allow a maximum risk-to-capital ratio of 25 to 1.

 

The high combined risk ratio might require MGIC to add capital to its reinsurance units, the company said in a statement.

 

 

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  • 2 weeks later...

Kyle Bass at the Darden School of Business (Video)

 

http://www.gurufocus.com/news/153703/kyle-bass-speaking-at-the-darden-school-of-business

 

{From the comment section}

 

Japan is super-stockpiling forex reserves by its present interventions to suppress the yen. These will later be spent defending the yen, pushing off the crisis day. The present interventions can be done at ZIRP rates, so Japan piles up a forex warchest for free. The current account will add even more over time. Further yen suppression will, too. These forex reserves now equal over 20% of GDP. These will not eliminate a determined currency assault, but they will delay the effects far longer than people suppose. The longer Japan remains the risk-off haven, the bigger this will swell as the government capitalizes on this win-win forex situation. Extrapolation from the costs of their current interventions, Japan could now sustain a 20 yen/$ boost constantly, for over a year.

Household savings are still 16x the national budget. As they die in ever greater numbers, death/estate taxes channel a big amount of this directly into the national treasury. This alone could alleviate immediate marginal rollover problems instead of worsening them. Politically, the Diet could easily increase this tax and very quickly reap a windfall. It would be much easier than the sales or vat tax, and the Keidanren plus the banks and LDP would be able to force it through, especially by trading concessions to farmers, whose vote is hugely disproportional to the elderly, owing to perennial failure to redistrict.

The budget will certainly cut military spending (greater reliance on U.S. security as we worry about China more) and by increasing the Health co-pay for individuals under the national health insurance. The first is politically very popular, the second is easy via ministerial actions insulated from real democracy. Privatizations of Japan Tobacco, Japan Post, public utilities, etc. will also produce brief windfalls of approximately 2/3 of one year's annual bond dependence.

Most importantly, the rollover crisis will be partially self-correcting. The Government will not intervene until the 135-160 range. At that time, the forex stockpile will be twice as powerful as now, and the longer they wait, the easier intervention will be. Meanwhile, Japan GDP will be skyrocketing as the exporting engine explodes to life. Bank and Ins. Co. balance sheets will show net improvement as overseas carry-trade investments increase in value, easing credit and exerting negative rate pressure.

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I have watched the BBC interview and I think it is hard to question his thinking. However, what is the real solution? He mentions that sovereign debts have to be written down. Fine, but then what? Many banks and insurance companies will take a major hit to their equity and some of them will face bankruptcy. Then banks won't want to do business with each other, credit markets will freeze and then the governments will be forced to inject money to prop up the banking system and will increase their debts once again. Sovereign debts will increase. A circular issue if you will. Looking at the U.S. we have a good example. It is not like the issue is solved. Austerity or large inflation are not pretty ways to reduce the debt load. Then Japan.....

 

Some nations with stronger balance sheet could help such as Germany and China, but by how much really? Enough to make a difference?

 

It just does not seem solvable. What do you see in our future that will put that issue to rest once and for all?

 

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It just does not seem solvable. What do you see in our future that will put that issue to rest once and for all?

 

 

Leaving private creditors with the losses. Bank bond holders with the equity, and basically just letting the pain hit the holders of debt and equity. Everything else is just kicking the can inmo. For the sovereigns the EU will just need to print money and move closer together or brake apart disastrously. Not many other options imno.

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Inflation, future v present value and accounting/political games obfuscate issues. However, if we assume for a moment that we are only talking about real numbers then I would venture the following.

 

Real debt can only be paid off by real cash flows, produced by real assets. So when your current real cash flows and future discounted real cash flows are less than your debt or at an unsustainable level then the only solution is to write down the debt. For example, if you are my creditor and I owe you $10 then you can do whatever you like, but if I only have $5 then it is impossible for you to get paid back in full, immediately. You can wait many years and hope I outpace your increase in real debt (say 5% a year) by my real growth in the asset (say 10% per year).

If I have $10 or even $20 then it might be possible, but impractical if say I am your only customer. So you can get paid back, but you will be putting your only customer out of business.

 

The predicament captured by the above example also sits at the heart of the global debt problem. Please verify the numbers, but off the top of my head the global public debt is $43T, global assets $140-$150T and global GDP about $50T. Let's assume for a moment you agree with me that the debt is too high then the only two solutions are to write down the debt our hope the real growth in assets outpace the real growth in debt.

If you study historical write downs of public debt then in modern times the average Debt/GDP ratio AFTER write down is 55%, which puts the country on a stable path over the medium term, but some of those countries defaulted again. The important relationship is between the tax revenues and cost of debt (interest and reduction of debt), but Debt/GDP is a crude way of capturing that relationship. With global public debt at an unsustainable level the only way out is for real debt to be cut in half. In my view, you cannot just go ahead and write off the debt due to the imbalances it would create, so the best way, which historically has also been the most popular way is to reduce real debt over a long period with a combination of write downs and inflation. So what we see today is what the next 5-10 years will look like. Global Japan with a lot of hiccups along the way.

 

That is why your Daddy told you; "Stay away from debt"!! Thank goodness mine did.

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  • 3 months later...

Eager to see if Kyle Bass gets his 650 bagger!!

 

http://online.wsj.com/article/BT-CO-20120309-712280.html

 

Payouts on a net $3.2 billion of insurance-like contracts designed to protect against losses on Greek sovereign debt have been triggered, after the country forced certain private creditors into its debt restructuring who didn't want to accept the terms of the deal, a committee of dealers and investors decided Friday.

 

http://www.dailymail.co.uk/news/article-2044363/Kyle-Bass-Meet-Texan-investor-millions-credit-crunch.html

 

He bought Greek default insurance for 11 basis points - meaning insuring $1m of bonds would cost $1,100 dollars a year.

 

'We’ve bought a lot of this stuff'

 

A Greek default would make it pay down its debt by around 70 per cent, meaning every $1,100 bet would net him an astonishing $700,000, Mr Bass said.

 

He said his mother tells him to put his money in 'guns and gold'.

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