November 02, 2012

Kyle Bass of Hayman Capital talks about Japan, SuperMedia and RMBS

Kyle Bass gave a presentation on the Best Ideas Investment Symposium in Dallas this month.

Kyle Bass mentioned that 90% of what he – aka Hayman Capital owns is in bonds. He said that they own tons RMBS/subprime exposure.

SuperMedia Debt 

Kyle Bass likes Supermedia debt. The company filed for bankruptcy and defaulted on billions of debt. Now debt trades at 66 cents and equity is almost zero. Now the company is also trying to merge with the competitor DexOne.

Kyle Bass recommends everyone not to own Japan

Kyle points out that there's 80-200 trillion in global debt. In 18 months Japan will structurally fall apart. He said: "There's no chance at Japan repaying their debt."

He says psychology is important so look at anchoring bias. It's important to think about how others think about debt. Japan's debt to GDP is the worst in the world. Their debt is 25x their revenues.

Bass said there are 3 axioms that are actually false:

1. Positive current surplus, Japan not self-funding: This is flat false he says.

2. Bank of Japan not monetizing the debt: Bass says they're already buying 2/3rds of the bonds today.

3. Retail investors will always support JGB's: Bass says Japan has a secular population decline.

He also illustrated how Japan is trying to sell JGB's by showing advertisements of a schoolgirl band selling them and sumo wrestlers pitching JGBs which is looks like a clear Ponzi scheme which desperately needs money to keep going.

Regarding the Softbank/Sprint deal since it was mentioned earlier in the panel by Lee Cooperman, Kyle Bass said that Softbank paying 20 billion yen to buy broken telecom is basically exporting yen as investors are starting to flee the currency.

Bass says that Japan has one of the "largest structural fiscal deficits in the world." He doesn't know when exactly this collapse happens as this could go on for a few years? He notes the timing on this sort of thing is very hard to peg, but it will "absolutely happen."

He said that playing options on this scenario is the best way as you get paid a ton when it happens and you lose a little while waiting.

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.