Oddly enough, the most viewed posts on my website over the past three years relate to Kyle Bass, the founder of Hayman Capital. I'm not sure if I should take that as an affirmation that I've done a good job of finding interesting and relevant material or just that I have been a conduit for posting his newsletters and trading ideas from time to time.
Prior to the latest market swoon, I've been feeling a bit like Kyle Bass as I've been reflecting on the market's performance and direction over the last four years and have been personally lamenting to myself that all of the gains in the market are not truly based on a real recovery or fundamental economic production. Yes, I've been able to document many winning strategies over the course of this volume-less levitation as I've suggested that corporate bonds, dividend paying stocks, defensive industries like healthcare would shine, metals would benefit, and refiners would surge higher. While those plays have led to healthy gains, I'm not a big fan of holding your nose and buying, I'd like to invest (long) when I felt convicted that there were solid underpinnings for company and economic growth rather than an approach based on reactions to unlimited QE and stupid government fiscal ineptitude.
WHEN WILL IT END?
In a way, I probably feel much like Kyle Bass as he is frequently poked and mocked for his "doom" trades where he has shorted JGBs and has other several sovereign bond disaster bets in play. One only has to look at the Japanese 10 Year Bond yield to note that the Hayman Capital short there hasn't been a pleasant one to hold.
While Bass may be a loser in this trade, the magic question will simply be, "How long can he stay in it?" since yields have fallen almost 25%. The answer is certainly, I don't know, but the thing I am certain of is that directionally, Kyle Bass is correct. The toughest part of one of these macro theme trades is staying solvent long enough to see the strategy through till the prediction is manifest. Personally I've felt like the fall of Chipolte (CMG) would never come and took some significant losses along the way. Happily though, reality does set in and if you have managed your exposure well enough, you can see the fruits of your shorts....
Kyle shared in a recent Bloomberg interview more of his dire and reasonable predictions about Europe. Please enjoy, it is very short, only about two and a half minutes.
It is interesting to note that he is now using a 3 to 4 year time frame. I am betting that he really thinks it will be shorter, but we've been able to witness just how adept sovereign nations are at extending and pretending and somehow keeping reality from actually hitting. The central banks and politicians may be able to delay the day in which payments are due by rolling debt and cramming it down on investors, but I think I agree with Kyle that unemployed teens and disgruntled citizens will ultimately force an end to an ugly and financially unstable system.