Tuesday, May 21, 2013
Kyle Bass bets on full-blown Japan crisis
Kyle Bass hopes he is wrong, and so may everyone else, as the danger predicted by the founder of Dallas-based Hayman Capital is nothing less than a full blown financial crisis in the world’s third-largest economy, Japan.
While the hedge-fund trade of the year has been to short the yen and buy Japanese stocks placed for an export boom, Mr Bass sees in “Abenomics” – stimulus from Japan’s new prime minister Shinzo Abe – signs of stress that he has been predicting for three years.
The length of that call might see him labelled as just another bear pushing a tired case. Shorting Japanese bonds has been the “widow-maker” trade for a decade: as interest rates moved ever lower it destroyed investors betting on a rise.
Mr Bass, though, predicts more than higher yields: “They will have a bond crisis in the next couple of years. A bond crisis doesn’t mean spread widening. It means they lose control of rates and their currency.”