February 12, 2012

Kyle Bass Recommends Investing in Productive Assets

This is not a cyclical rebound from a crisis. You shouldn't be buying stocks because a low P/E ratio, because the E is wrong.  We’re going to see declines, and people don’t know how to position themselves for declines.

If you’re an individual you need to be much more conservative then you even think you need to be. Return of capital is much more important in the next few years than return on capital.

In the environment we’re talking about here, the U.S. dollar should be fine in the short to medium term, if we’re right about Europe and Japan. I think you should be more in cash, and hanging onto productive assets and less invested in financial assets (stocks, derivatives).

Productive assets like farmland, real estate could still experience losses but they should provide a better inflation hedge.

I took physical delivery of gold, and it had to do with the fractional reserve nature of the COMEX.

What’s going to happen in Europe is going to happen very soon.  The 30-year bond rate in the U.S. could go lower than 2% if money starts running to the U.S. during the upcoming European sovereign crisis.

I don’t get paid to be an optimist or a pessimist, I get paid to be a realist. Being a realist in this scenario is pretty negative.

Don’t believe these governments, when they tell you that everything is going to be fine….think about Mexico in 1994….if you remember the crisis, the day before the government devalued 60% they said they wouldn’t devalue. The government can never tell you what they are about to do….the key takeaway is develop your own opinion.

Source: BusinessInsider

Kyle Bass, an American hedge fund manager, is the Founder of Hayman Capital. He received extensive coverage in the financial press for profiting $590 million by short selling the sub-prime mortgage bond market, before that market crashed. In 2011, Bass initiated a huge position in Greek sovereign debt through CDSs. Media reports were that he could profit up to 650 times his investment should Greece default on its debt obligations.

Kyle Bass Urges Texas Fund to Hold Gold Hedge

Kyle Bass, the Dallas hedge-fund manager, urged overseers of Texas (STOTX1)’s state university endowment, the second-largest U.S. college fund, to stick with a $1 billion investment in gold bullion even as the fund’s assets decline.
“I’m against selling any of the gold,” Bass said today at a meeting of fund directors in Austin, citing the need for a hedge against mounting risks driven by government deficits in the U.S. and Europe. “As every day goes by, I see deflation in the things you own and inflation in the things you need.”
The $19.1 billion in endowment funds overseen by the University of Texas Investment Management Co., or Utimco, lost almost 3.8 percent on invested assets in the four months through December, preliminary figures distributed today show. The Standard & Poor’s 500 Index of shares gained almost 4 percent over the same period, including reinvested dividends. In 2011, the Texas fund’s allocations rose in real estate, natural resources and hedges to protect against slumping equities.
“Ho-hum performance is how I’d characterize our hedge fund portfolio,” said Bruce Zimmerman, Utimco’s chief executive officer, referring to second-half 2011 performance. Hedge funds manage about $7.5 billion of the $19.1 billion. Their results aren’t indicative of their abilities and no major change in the roster of funds is being considered, he said in an interview.

Wary Outlook

Charles Tate, chairman of Capital Royalty LP in Houston, and other Utimco trustees echoed the wary outlook held by Bass, citing concern that the Federal Reserve’s plan to keep interest rates low for two years may only delay an economic decline.
The Fed’s governors, led by Chairman Ben S. Bernanke, “are scared as they can be of deflation,” said Ardon Moore, president of Lee M. Bass Inc., an energy company in Fort Worth, Texas. “This is a grand experiment and they typically never end well.”
People with large amounts of private wealth are holding more cash than most endowments and public pensions, expecting equity prices to decline over the next few years, said Moore, who based his assessment on conversations with asset managers.
His company is owned by Lee Bass, whose $2.1 billion net worth in September ranked him among the world’s 600 wealthiest people, according to Forbes magazine.
Kyle Bass, a managing partner at Hayman Capital Management LP and a Utimco trustee who isn’t related to Lee Bass, faulted the world’s biggest central banks for expanding the money supply by what he said was $15 trillion during the past five years. In April, he advised the fund on holding gold bars rather than futures contracts.
Gold futures for April delivery, the most-active contract traded on the Comex today in New York, touched $1,763.80 an ounce, the highest price since Dec. 2. The metal, which reached a record $1,923.70 on Sept. 6, climbed 11 percent last month, the biggest January rally since 1983.
The University of Texas and the Texas A&M University systems are subsidized by endowments overseen by Utimco. Harvard University in Cambridge, Massachusetts, had the biggest U.S. college endowment in 2010, the latest figures available.

Source: Bloomberg