"I have 27 year old kids selling me one-year jump risk on Japan for less than 1bp - $5bn at a time.
You know why? Because it's outside of a 95% VaR, its less than one-year to maturity, so guess what the regulatory capital hit is for the bank... I'll give you a clue - it rhymes with HERO...
If the bell tolls at the end of the year, the 27-year-old kid gets a bonus... and if he blows the bank to smithereens, ugh, he got a paycheck all year. ...We bought half a trillion dollars worth of these 'options'... and interestingly enough, one of the biggest banks in the world called me the other day and asked me if I would close my position - that was an interesting day for us - that happened to me in 2007 right before the mortgages cracked."
http://www.zerohedge.com/news/2013-03-12/kyle-bass-warns-aig-world-backFull 50ish min presentation:
http://media.chicagobooth.edu/mediasite/Viewer/?peid=f15d95d054e8442ab0cc1c60321383101d
Comments
I could not get the video to play, but did read more of the article you shared... Makes me concerned when smart folks like Mr Bass are so positively bearish.
Hussman is bearish. However, Hussman is not bearish and making an asymmetric bet. If things turn sour and Hussman is right, his funds will gradually do well over time. If Kyle Bass is making a bet against Japan - and his theory is certainly sound on a number of levels - it could take longer than thought, but the payoff would potentially be enormous. Read Michael Lewis' "The Big Short", which focused on subprime and bets made by Paulson and others. Everyone screamed at them that housing was going to go up for ever, and as long as that was the case, buying insurance against subprime was cheap - but it took a while and many investors screaming at them that they were insane. However, when it paid off, it paid off significantly. People think what Japan is doing is going to work.
Bass said, "I don't get paid to be an optimist, I don't get paid to be pessimist, I get paid to be a realist - and a prudent fiduciary of the capital, and then if i have time I care about the social issues of the world."
Bass may be thought to be bearish, but he - as of last November - was certainly bullish on subprime bonds, the very thing that he bet against only a few years prior.
http://www.bloomberg.com/news/2012-11-16/bass-says-half-his-fund-is-invested-in-subprime-bonds.html
I think a lot of people view me to be extremely pessimistic, but I'm really not. I actually like quite a few things, but I think - big picture - world economies are still in a spot that is more precarious than most people would like to admit and the stringing sugar highs together mentality is not going to lead to a sustainable recovery (nearly five years later, we've spent trillions and the training wheels of ZIRP and QE are still on.)
What Japan is doing is really going to end very badly if history (or logic) is any indicator, but they'll do the only thing they know how to. You have a country that is going to wreck its currency (and the purchasing power of its people) in order to gain export advantage. They want inflation and they think that, like an air conditioning unit, they can control it and dial it up and down. Japan has not much in the way of resources, so what happens when all the stuff the need that's imported becomes a lot more expensive? I'm curious if they think other countries will stand idly by while Japan devalues - I don't think so.
Additionally: "Japan is the world's largest importer of LNG, second largest importer of coal and the third largest net importer of oil.
Japan relied on oil imports to meet about 42 percent of its energy needs in 2010.
Japan relies on LNG imports for virtually all of its natural gas demand and is the world’s largest LNG importer."
http://www.eia.gov/countries/country-data.cfm?fips=ja
I tend to think taking care of all of those energy imports will become a tad more expensive if Japan really devalues the currency significantly.
I am long Japan, but not with any eye towards positive fundamentals. If the BOJ wants stock prices higher and wants inflation (and thinks they can control it like a freaking air conditioning unit - we'll see), I'll put some money in Japanese equities.
Price levels for landed LNG cargos range from USD $19.75 MMBtu (million British Thermal Units) in Japan, $17.75 MMBtu in Korea, $15.25 MMBtu in Spain, $9.86 MMBtu in Belgium, and $3.01 MMBtu in the United States, as of the latest data for March 2013. This is a substantial increase for nearly all regions compared to April 2012 price levels. The US Energy Information Administration, or EIA, expect landed LNG price levels to remain in the $3 MMBtu to $4 MMBtu range in the United States, though the EIA feels the lack of domestic gas production in Asia may keep price levels elevated.
Australia is currently the largest natural gas exporter to Japan, recently overtaking Qatar and Malaysia. Following the tsunami and nuclear disaster at Fukushima, Japan has steadily increased LNG imports to meet energy demands. LNG is now one of the largest export commodities from Australia. One project underway to expand LNG production is the Gladstone LNG project in Queensland. The first shipments from Gladstone LNG are expected in 2015.http://seekingalpha.com/article/1265171-sailing-the-seas-of-natural-gas-with-golar-lng