Tags: Bass | world | debt | subprime

Kyle Bass: World Saddled With Too Much Debt

Thursday, 04 Oct 2012 07:57 AM

The global economy is bogged down with too much debt, giving investors little choice as to where they should put their money, said Kyle Bass, founder of hedge fund Hayman Capital.

“We’ve never been here before,” Bass told CNBC.

“It has been the largest peacetime accumulation of debt in history.”

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

Investors, meanwhile, are having a tough time planning strategies, he said, adding that his “goal is not to lose money.”

Famed for shorting subprime residential mortgage-backed securities long before the housing bust, Bass told CNBC he now has about half his portfolio in subprime and partly subprime mortgage bonds on expectations that while home prices aren’t set for a noted rebound, they’re not likely to go down anymore, either.

Investors should also look for hard assets such as apartment buildings, oil wells and gas wells —“anything that has a real asset that’s productive,” Bass added.

Central banks have been loosening monetary policies worldwide, slashing interest rates and pumping liquidity into their respective economies, dubbed as money printing by the markets, which has weakened paper currencies and inflated stock prices.

Inflation will sooner or later strike, thanks to such monetary accommodation, which Bass said isn’t going to spark recovery due to the massive amounts of debt.

“We had a hyper-leveraged economy and world going into the financial crisis,” Bass said.

“We lost trillions and trillions of dollars because of that leverage. The first several trillion dollars that were printed just replaced what was lost” and had no net effect on global money supply, although as liquidity levels continue to rise, inflation rates will follow suit.

Other noted investors are making similar calls for hard assets, especially in light of ultra-loose monetary policies in the United States.

The Federal Reserve recently announced it will spend $40 billion a month buying mortgage-backed securities from banks to pump liquidity into the financial system in a way that pushes down interest rates across the broader economy to spur recovery, a monetary policy measure known as quantitative easing.

Side effects to such a policy tool include a weaker dollar, rising stock and commodity prices and mounting inflationary pressures.

Gold performs particularly well under such a scenario, especially in the wake of the two previous rounds of quantitative easing that pumped a combined $2.3 trillion in inflation-fueling liquidity into the economy.

Expect gains to continue as the dollar weakens and institutions stock up on gold as a hedge, central banks especially.

“What they used to be selling into the market now they are clamoring for and are taking off the market,” David McAlvany, CEO of the McAlvany Financial Group, told Newsmax.TV in a recent interview.

Supply constraints will add further upward pressure to gold.

“This is a commodity space where there has been very little expansion in terms of overall production, so expanded demand and minimal increases in supply, I think you have the perfect powder keg for prices going significantly higher for gold and silver.”

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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The global economy is bogged down with too much debt, giving investors little choice as to where they should put their money, said Kyle Bass, founder of hedge fund Hayman Capital.
Bass,world,debt,subprime
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2012-57-04
Thursday, 04 Oct 2012 07:57 AM
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