Tags: Bass | Japan | europe | debt

Kyle Bass: Japan on Brink of European-Style Debt Crisis

Friday, 11 May 2012 02:58 PM

Heyman Capital hedge fund manager Kyle Bass says Japan is about to join Europe in the debt-crisis club.

"Greece will circle the drain and be ungovernable in the next 30 to 60 days,"
Bass told attendees at the Skybridge Alternatives, according to CNBC. "Japan is in the crosshairs of the market...I've never seen more mispriced optionality in my entire life."

Bass says that the Bank of Japan, the nation's central bank, is effectively monetizing the national debt by buying 50 trillion yen worth of Japanese government bonds.

He believes it's easy to see a crisis coming. "The fact of the matter is this is no longer an exercise in quantitative analysis," he says. "It's a question of when, not if."

"Madoff taught us something," says Bass. "You can make promises for a long time as long as you don't have to live up to them."

Despite economic problems in Europe and Japan, Bass says investors can effectively hedge themselves against this systemic risk. He likes mortgages, specifically committing one-third of his portfolio to nonagency loans, or those not underwritten by government-sponsored enterprises Fannie Mae and Freddie Mac.

Japan’s central bank pledged to deploy its foreign-exchange assets as part of any international emergency response to turmoil in financial markets, Bloomberg reported.

“Time may be necessary before international organizations and other relevant institutions are able to take necessary measures,” the Bank of Japan said in a statement in Tokyo. The bank “would be prepared to provide foreign currency until international support is provided,” it said.

The bank revised its guidelines for reserve management to take account of “recent changes in international financial and capital market conditions.”

In 2008, the BOJ participated in Federal Reserve swap lines designed to address a surge in demand for dollars in the aftermath Lehman Brothers Holdings Inc.’s collapse. Today, investors are monitoring for any signs of a Greek exit from the euro region that would roil markets anew, Bloomberg reported.

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Friday, 11 May 2012 02:58 PM
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