Recommended Viewing: Kyle Bass on the decline of the Yen & the end of the Debt Supercycle

In this excellent interview American hedge fund manager, Kyle Bass, Founder of Hayman Capital, shares his thoughts on the coming decline of the Japanese yen and the end of the Debt Supercycle.

From the interview:

“The data continues to confirm our investment thesis over the last few years and more validate the manner in which we think this is going to continue to play out… The bottom line is the total credit market debt-to-GDP globally is 350%. It’s 200 trillion dollars worth of debt against global GDP of roughly 62 trillion.

So it’s our belief you are going to continue to see lower global growth, and you’re going to see certain countries hit the proverbial end-point or wall where they have to restructure their debt.

Investing in the environment that I am describing to you is the single hardest thing to do – as far as investing is concerned – over the last few decades. So this is a debt supercycle that’s coming to an end.”

As a result of his thesis Mr Bass is very bearish on Japan, saying that, “You have a secular decline in the population, you have a balance of trade that is literally being rewritten and falling off a cliff, and their GDP is now tracking negative 3.5 or 4%. So what has to happen in Japan. Now their backs are against the wall. They have a full crisis, and they absolutely have to change the manner in which they deal with their currency.

And so we think over the last couple of months they have crossed the final Rubicon that turns the whole situation around and weakens the Yen… Then you are going to start to see, we think, in the next 12-18 months a move in their rates. Basically Japan is entering its final checkmate phase of the game.”

He sees the nation experiencing a “bond crisis” and “massive devaluation” in the yen.

Kyle Bass made around $590 million shorting sub-prime mortgage bonds in the global financial crisis. In 2011, he took a huge position in Greek sovereign debt CDSs (credit default swaps) that could make him a profit of up to 650 times his initial investment should Greece default on its debt.

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